Nifty targeting 10,500 with support near 10,200 in November series
Recent net Put additions (highest in the last couple of sessions) are seen at 10200. Hence, this level will be immediate support for ongoing momentum. Only a move below 10200 can result in a change of bias in the short-term
By Amit Gupta
ICICIdirect
The open interest in Nifty futures at 22.3 million shares is the highest seen since March 2017 amid subdued roll cost. The relatively high open interest amid continued low roll spread indicates continued short aggression despite the Nifty moving to life-time high levels.
The short covering in these positions could lead the Nifty towards 10500. For the November series, the Call base is scattered from strikes ranging from 10300 to 10600, with relatively small OI of 2 to 3 million shares.
This suggests Call writers are apprehensive about upsides. Hence, they are spread over the positions till 10600, which remains a target for the October series.
Recent net Put additions (highest in the last couple of sessions) are seen at 10200. Hence, this level will be immediate support for ongoing momentum. Only a move below 10200 can result in a change of bias in the short-term
In the October series, there have been a lot of tactical allocation shifts. For example, key index heavyweight private banking stocks have seen profit booking while low weight PSU banking stocks have moved higher.
A similar trend is also seen in select lower weight stocks from the IT & pharma space. This may support Nifty consolidation. However, it may have lack of thrust from an index viewpoint.
Nifty Bank: Tactical shift within banking index to keep index volatile
The Nifty bank index ended the October F&O expiry on an optimistic note and at the highest levels for the month. This was supported by the government’s move to infuse Rs 2.11 lakh crore over two years in PSU banks.
On the back of this, all PSU banks saw huge long additions. PNB remained the star performer where it rose nearly 60% post the news followed by other banks.
However, as the November series started, marginal profit booking was seen in PSU banks, which kept the index move in check near 25100.
However, as the series progressed, open interest concentration was seen in 25200 and 25500 strike Call options whereas, for the coming week, open interest is seen rising in 24700 strikes Put.
We feel contracting IV’s will give a boost to Put writers with few private sector banks stocks, which is very much near the support viz. Axis Bank, HDFC Bank, Kotak Mahindra Bank and a few midcap banks are likely to provide a further boost to the index.
The current price ratio (Nifty Bank/Nifty) is placed near 2.41 levels. We feel support is very near. The ratio is likely to move towards 2.45 and 2.48 levels in coming days, which is likely to provide a cushion to the index.
FII selling in Indian equities tapers post-PSU banking recapitalisation:
FII outflows continued in the Indian equity segment. However, post PSU recapitalisation the sell-off abated. This kept the net outflow for the month below US$1 billion (lowest outflow since August).
A look at the FIIs’ action in F&O segment, suggests a continued positive bias. In the index futures segment, there was the long addition of US$560 million. In the index options segment, there was buying of over US$450 million (hedging).
In the stock future segment, there was the long addition of US$387 million. With the re-emergence of reflation trade (higher US dollar, US equity & bond market) on hopes of a new Fed chair and passage of tax reform, EM equities have seen some traces of profit booking with EM index falling over 1%. Fund flow wise the action was tepid as well with South Korean and Taiwan seeing inflow of over US$100 million
With the ECB under-delivering on its hawkish outlook, the focus is totally on news flows emanating from the US. With the emergence of reflation trade, the focus is on stronger dollar & higher bond yields.
If the Dollar Index and US 10 year are able to sustain above 95 and 2.45%, respectively, then EMs may see extended profit booking. The key level to watch on MSCI EM index is 1095 (currently at 1108). A move below this level may push the index to the key support level of 1070.
