The Hindu Business Line : Outlook negative for Nifty future

The Nifty future ended the week on a weak note. Trading volumes remained moderate. The overall market wide open interest positions stood at Rs 64,880 crore.

The Nifty March future now trails the Nifty spot by about 45 points indicating the creation of fresh short positions.

Follow-up

As has been predicted, the Nifty future moved out of the narrow range and took a clear downward direction.

We had advised investors to go short on the Nifty future last week.

Those who had gone short would have made handsome profits.

During the previous week, we had recommended investors to consider a straddle strategy by buying 5100-strike of calls and puts. This position also moved into positive zone.

Outlook

We expect the downtrend to continue for the Nifty, as it breaches each successive support. The immediate support for the Nifty future is at 4700-level.

Though it dipped below this level, it bounced back from the day’s low to regain the crucial 4700-mark.

While the immediate resistance is at 4850, and it faces its next resistance at the 5100-level. Bearish trends may persist as long as the Nifty future stays below the 5850 level.

Recommendation

As we expect the sentiment to weaken further, we advise investors to go short on the Nifty future keeping the stop loss at 4850. While the Nifty future may slip at the opening, it may remain locked in a sideways movement. Risk-averse people can adopt a wait-and-watch attitude.

Implied volatility

Implied volatilities rose for both puts and calls. While puts IV inched up to 45 per cent (42 per cent), calls IV improved to 55 per cent (42 per cent).

This means that a lot of call writers have emerged indicating a negative bias. The relative firmness in volatilities means that market is likely to see continued volatile trading conditions.

Put/call ratio

Volume wide put/call ratio declined to 0.73 (0.95) and open interest PCR to 1.06 (1.31) suggesting that a lot of puts positions have been squared-off when the market fell sharply. The drop in volume-wide put/call ratio suggests a low level of participation by market players.

Stock futures

Sesa Goa (Rs 3,464): We had presented a positive outlook on the stock. In line with the general market conditions, the stock also witnessed a fall though it showed some initial resilience. Those who had gone short on this stock could have booked a loss at the support of 3225.

Reliance Industries (Rs 2,248.25): The sentiment remains negative for the stock. It dipped below its key resistance Rs 2320-level. The stock finds support at the Rs 2,017-20 and then at Rs 1,812-15 levels. Investors may consider going short on the Reliance future.

FII trends

The cumulative FII positions as a percentage of gross market positions on the derivative segment as on February 29 was at 45.56 per cent. FIIs have remained more or less neutral by engaging in alternate bouts of buying and selling.

They now hold index futures worth Rs 27,067 crore (Rs 27,820 crore) and stock futures worth Rs 24,506 crore (Rs 25,493 crore). This indicates that they have created fresh short positions in the F&O space.

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

K.S. Badri Narayanan

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