The Hindu Business Line : Nifty future may drift lower

Markets seem to have lost their momentum midway. After witnessing wild swings intra-week, the Nifty September future finished marginally lower at 4352.2 points against the previous week’s close of 4370.55, shedding little over 0.4 per cent. However, the premium of Nifty September future over the spot widened to seven points against its previous week’s four points.

Follow-up

We had earlier (August 24) presented short straddle strategy using 4400-strike and advised investors to hold on the strategy for 10 days. The option spread would now have turned in-the-money. Risk-averse traders can consider booking profits at this point. Our last week’s strategy was a short strangle using 4000 put and 4600 call. The spread would now be at a no loss no gain position.

Reliance Industries: The stock has touched our targeted level of Rs 2,055. Traders who had followed this call would have made windfall profits.

Outlook

The sharp fall on Friday has made the recovery path for Nifty rather difficult. The sentiment has now turned slightly bearish. We expect the Nifty future to touch its immediate support level at around 4200-4250. A dip below 4200 has the potential to take it to a low of 3800 levels. On the upside, it faces a strong resistance at 4650, though in between 4450 may also pose resistance. We expect the Nifty future to turn downwards during the week, even though it may open on a positive note as India has received NSG clearance.

Critical factors

a) Nifty 4300 September put saw the emergence of writers, indicating 4300 could act as a trigger.

b) The Nifty volatility index or India VIX - the fear gauge, which captures the immediate expected volatility of the market, increased marginally to 32.65. This indicates that some traders have turned mildly cautious.

Recommendation

We are presenting two strategies for investors.

1) One buying 4300 September put which is currently quoting at Rs 109.7.

2) Another strategy could be going short on Nifty future keeping the stop-loss at 4650. This strategy is only for high-risk traders.

Stock futures

Reliance Capital (1315.35)

The stock is at a critical stage. While it faces an immediate resistance at 1344, it has support at 1214. A breach above 1344 can take it to 1375-1400 levels, whereas a dip below the support can lower it to 1129-1130 levels. We expect the stock to touch its support level. Traders with higher risk-appetite can consider going short on the counter keeping the stop-loss at 1344. However, if the stock opens on a firm note on Monday, this strategy should be avoided.

FIIs trend

The cumulative FII positions as a percentage of total gross market position on the derivative segment as on September 4 was 37.98 per cent. This once again indicates the higher level participation of local traders, particularly proprietary segment. Foreign institutional investors resorted to heavy selling on Friday, though they were net buyers during most part of the week. They now hold index futures worth Rs 12,636.83 crore (Rs 12,906.41 crore) and stock futures worth Rs 19,077.47 crore (Rs 16,055.96 crore). However, their holding on index options stood higher at Rs 22,093.13 crore (Rs 18,269.51 crore).

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