Nifty 50 (17,604) lost 2.3 per cent last week, in line with our expectations. However, Nifty Bank (40,345), whose data hinted at a flat trend, fell more than the benchmark index by losing 5.1 per cent. Broadly, the derivatives data of both indices show bearish inclination. Here’s an analysis of futures and options data.

Nifty 50

The February futures contract of Nifty 50 lost 2.4 per cent to close the week at 17,695. While it had broken some key supports, it should be noted that there was a drop in the cumulative Open Interest (OI). This means that participants exited as Nifty futures dropped. The cumulative OI dropped to 121.6 lakh contracts on Friday versus 137.2 lakh contracts by the end of the preceding week. Strictly speaking based on the price-OI relationship, a fall in price along with a drop in OI indicates long unwinding, not a good sign for the index.

On the other hand, the option data (expiring February 2) shows significant call selling and the Put Call Ratio (PCR) stands at 0.51. Call options with strike of 17800 and 18000 saw substantial addition of OIs as prices dropped and so, traders do not expect a rally beyond these levels, at least till the current weekly expiry on February 2. At the other end of the option chain, 17000- and 17100-strike puts options have been bought in good numbers on Friday. Therefore, if the downtrend continues, we might see the index going all the way towards 17,100 and 17,000 this week.

Considering the above factors, the Nifty 50 might see further fall from current levels.

Bearish signals
Substantial call selling on both indices
Nifty Bank futures witness short build-up
Nifty 50 futures OI drops with fall
Nifty Bank

The Nifty Bank February futures tumbled 4.7 per cent last week to end at 40,690. But unlike Nifty 50 futures, Nifty Bank futures have seen its cumulative OI go up to 26.7 lakh contracts compared with 24.4 lakh contracts a week ago. This shows short build-up on Nifty Bank futures. While this is a bearish indication, the premium at which the February futures has been trading over the spot index has gone up to 345 points on Friday from 208 points by the end of the previous week. This can be taken as a positive sign. However, this is no indication of a bullish reversal for which there should be more confirmations.

That said, the PCR of February 2 expiry options is at 0.41, meaning traders have sold call options which is more than twice that of put options. Huge amount of call writing has happened between 41,500 and 43,000 strikes and this is a signal that the participants are not anticipating a recovery this week. On the downside, 39000- and 38000-strike puts are the most active followed by 39500. Therefore, these are the potential supports for the Nifty Bank.

Overall, like the Nifty 50, the signs are largely bearish and so, we might see an extension of the downtrend this week.