The Hindu Business Line : Negative bias seen in Nifty future

At the end of an eventful week, the Nifty future ended in the positive territory though it saw volatile swings during intra-day trading sessions. Volumes remained moderate at an average daily turnover of about Rs 56,250 crore.

Last week, the February contracts expired and the May month series were introduced. Overall market-wide open interest positions improved to Rs 89,967 crore against last week’s Rs 75,588 crore, indicating a pick up in open positions. Rollover of open interest positions was healthy at 76 per cent for the Nifty future and 75 per cent for stock futures.

Metals, cement and pharma stocks have witnessed sharp rollovers though rollovers were muted in counters such as Reliance Industries, REL and RNRL.

Follow-up: Expecting a break-out soon, we had advised investors to consider a straddle strategy by buying Nifty March 5100-strikes of call and puts. Investors may continue to hold positions as the Nifty is heading into a decisive phase.

Outlook

This week the Nifty might break-out from its narrow range, to take a clear direction. While 5850 is a crucial resistance for the Nifty future, it finds support at 4950. We expect the Nifty to take clear direction may be on the negative side, as captured by technical indicators such as put/call ratio and implied volatility.

The immediate resistance for the Nifty future is at about 5200-5250. A dip below 4900 could take it to 4700 level, where a minor support zone exists and then to 4400-4450 levels. The overall bullish sentiment could resume once it moves past the 6350 mark with heightened volumes. A bearish trend may exist as long as the Nifty future stays below 5850 level.

Recommendation

As we expect the sentiment to weaken, we advise investors to go short on Nifty future keeping the stop loss at 5385. Risk-averse investors can wait-and-watch.

Implied volatility

Implied volatilities displayed a divergent trend. While puts IV declined to 42 per cent (49 per cent), calls IV improved to 50 per cent from 44 per cent. This means that new call writers have emerged indicating a negative bias. The relative firmness in volatilities means the market is likely to see another bout of volatile trading conditions.

Put/call ratio

Volume wide put/call ratio improved to 0.95 (0.79) and open interest PCR to 1.31 (0.91) suggesting that lot of puts positions have been kept open anticipating fall in the market.

Stock futures

Reliance Capital: We had presented a negative outlook for the stock suggesting a target of Rs 1,770. Though the stock closed at Rs 1,824 against last week’s Rs 1,904, it touched Rs 2,050 intra-week, moving past our recommended stop-loss level of Rs 1,925.

Sesa Goa (Rs 3464): The outlook for the stock appears positive. After moving in a narrow range, the stock was able to pierce the resistance level. The stock may touch Rs 3,850, if the current trend persists. It finds support at Rs 3,225. Market lot is 75 units per contract.

FIIs trend: The cumulative FII positions as a percentage of gross market positions on the derivative segment as on February 29 was at 48 per cent.

FIIs have remained more or less neutral by indulging in alternate bouts of buying and selling. They now hold index futures worth Rs 27,820 crore (Rs 27,760.53 crore) and stock futures worth Rs 25,493.86 crore (Rs 28,750 crore). This indicates that they have not rolled over most of their stock futures to the current month series.

(The opinions expressed in this column are based on technical analysis. There is risk of loss in trading.)

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