The Hindu Business Line : Nifty future regains bullish momentum

The Nifty future regained the bullish momentum last week. Both the Nifty spot index and the NSE Jaunary future gained smartly by over 5 per cent. Rollover of open interest from the December to January series was quite healthy at 85 per cent for index futures and 82-85 per cent for stock futures.

Trading picked up sharply, last week being settlement week for December contracts.

Follow-up: Last week, we had presented a cautious outlook on Nifty. For investors with a high risk appetite, we advised to go long on Nifty future with a stop-loss at 5750. This strategy panned out well as the Nifty future gained handsomely.

Outlook

The smart recovery in the Nifty future turned the sentiment firmly in favour of the bulls. The Nifty future has support at 5990 and as long as it stays above this level, there is no threat to the bull party. A dip below the support could weaken it to 5750-60 levels. On the other hand, it faces resistance at 6210-20 levels, and a move above this level could take the Nifty future to record high levels of 6350.

Recommendation

As we expect the bull momentum to sustain, we advise investors to go long on Nifty futures. In that event, the stop-loss could be at the support level of 5990.

Alternatively, investors could also consider buying Nifty 6100-call which is ruling at Rs 197.05. While the maximum loss in this strategy could be the premium paid, the gain is unlimited.

Implied volatility

The implied volatility (IV) of puts and calls dipped from the previous week’s levels. While puts IV dipped to 24 per cent (32 per cent), calls IV weakened marginally to 26 per cent (27 per cent). A relative firmness in calls IV suggests that significant puts position were squared off as the benchmark surged sharply.

Put/call ratio

While volume-wide PCR declined to 0.73 (1.11), open interest wide PCR increased to 1.31 against last week levels of 1.08. This suggests that several puts position were closed on Friday.

Stock futures

IFCI: We had advised investors to consider shorting IFCI December future keeping the stop-loss at Rs 82. We had expected the stock to touch Rs 60, its support level. Contrary to our expectation, the stock remained firm around Rs 78-82 level. For those who had followed our strategy, the position is the red. However, we reiterate the recommendation. Investors may consider shorting the January future keeping the stop-loss at slightly higher level of Rs 88-90.

Sesa Goa (Rs 3,796.7): It is at a crucial stage. In the last few days it moved in the narrow band. While it faces support at Rs 3,560, Sesa Goa finds resistance at Rs 3,910. We expect the stock to move upwards to its resistance level. A move above the resistance level could take the stock to Rs 4,050-4075 levels. We advice investors to consider going long on the stock; Market lot is 75 contracts per unit.

FIIs trend

Cumulative FII positions as a percentage of gross market positions on the derivative segment as on December 27 was 39.26 per cent (35.10 per cent on December 19).

FIIs continued their selling last week as well, in F&O segment, particularly in stock futures. However, they remained net buyers in index options and index futures, suggesting that they expect volatile conditions, while continuing to be bullish on the index. They now hold index futures worth Rs 20,812.38 crore (Rs 20,953.36 crore) and stock futures worth Rs 49,220.34 crore (Rs 50,450 crore). This indicates that they also rolled over their positions both in index futures and stock futures.

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