Nifty 50 (19,745) and Bank Nifty (46,075) appreciated 0.9 and 2.8 per cent last week, respectively. The former underperformed the latter because of the fall on Friday which was because of one stock, a major contributor in the index, opening significantly lower on the back of a demerger.

Nevertheless, the overall trend remains bullish for both Nifty 50 and Bank Nifty. Below is an analysis of futures and options (F&O) data. 

Nifty 50

Despite a fall of about 1 per cent on Friday, the July expiry Nifty futures posted a weekly gain of 0.9 per cent. Although there were significant exits made by participants on Friday, on a weekly basis, there was an increase in cumulative Open Interest (OI). It increased to nearly 135 lakh contracts on July 21 versus 124.3 lakh contract on July 14. Thus, broadly, there were fresh long build-ups over the past week.

However, the option chain of July monthly expiry options show that the Put Call Ratio (PCR) stands at 0.8 which means more call writing was seen. This indicates that participants do not expect a rally, especially beyond 19,800 and 19,900 as call option with these strikes have highest outstanding OI. Similarly, 19,500 and 19,600 are the key supports.

Going by the above factors, we might see Nifty July futures staying sluggish until expiry. Post the expiration of the July contract, we are likely to see a rally. Therefore, traders can consider fresh long positions after the July contract expires. Alternatively, bullish positions can be initiated if the underlying index crosses over the 20,000-mark.

Derivative outlook
Nifty 50 options show some bearishness 
Bank Nifty options exhibit neutrality
Futures of both indices saw long build-up
Bank Nifty

The July Bank Nifty futures went up 2.7 per cent last week as it closed at 46,108 on Friday. As it happened, the cumulative OI of Bank Nifty futures shot up to 31.3 lakh contracts on July 21 compared with 25 lakh contracts on July 14. This indicates long build-up over the past week.

Unlike Nifty 50, whose options exhibit some bearish bias, Bank Nifty’s option chain show neutrality as the PCR of July contracts stood at 1.04. Thus, the number of call and put options sold are almost the same. 

46,000 is a strong support as the put option with this strike price has the highest OI. Applying the same logic to call options, the likely resistance points are 46,500 and 47,000.

The above factors gives us a hint that Bank Nifty is likely to consolidate until the current month expiry on July 27. After that, the index could start appreciating.

Given the above conditions, participants can stay on the fence until July 27 or can go long on August futures or buy call options of August series as the overall bias is bullish.