Nifty to expire around 5,350 in Aug series: MF Global

In an interview to CNBC-TV18 he said, "Individual stocks are actually looking weakish or a bit wobbly and therefore expiry may still happen at 5,350 or thereabouts. It is quite possible that the follow-on that we are expecting to see in the first week of September or thereafter may come for real."

As a strategy, he maintains a long bias on IT sector particularly TCS .

Also read: See Aug expiry at 5350; bet on FMCG, pharma says ICICI Direct

Q: The Nifty is still holding 5,300, but so many stocks have broken down. Is the August series, which has been good for the Nifty ending on a little sour note?

A: There are just a couple of trading sessions left before we go into the next series. But at this point in time, based on the rollovers that we have seen both for Nifty index futures as well as index options and for single stock futures there seems to be a long bias. That is quite visible from the way the Nifty rolls spreads have expanded in the last two days from 26 to 32.

So, there is an indication that there is a long bias. August session was obviously one where we have seen the FIIs take long side of the Nifty futures and increase their open interest by as much as about 60-70% over the previous month. Likewise, even in the underlying cash market there is a net purchase even if you remove the stock future versus cash related arbitrage books to the extent of about 7,000-7,500 crore.

So, August has gone off well. But, I share your sentiment in terms of the number of stocks that are actually looking weakish or a bit wobbly. Therefore, while expiry may still happen at 5,350 or thereabouts, it is quite possible that the follow-on that we are expecting to see in the first week of September or thereafter may come for real.

Q: What have you made of the FII activity in the futures and options market over the last few days?

A: From the roll activity in terms of books getting rolled from August to September, the current roll numbers that we have are in line with the average that we have seen over the last few months. Nifty Index Future roll book was looking lower than the average till yesterday.

But, the figures this morning are looking pretty much in line with what the average is. So, from that particular perspective it doesn’t look that the approach to index in futures segment from FIIs has changed which therefore still remains a long bias.

Q: How have you read the consistent drop in the India Volatility Index (VIX) through this series?

A: Almost for a month or so, we were looking at the way the implied volatilities and of course India VIX was falling. There was a period of time where it was as low as about 11.5-12% for some of the at-the-money (ATM) volatility for Nifty options.

But in the last day or so, it has all come back to about 14.5-15.5 type of readings. Therefore, what we saw such as the 300 point move in Nifty between last expiry and today was characterized by a low volatility environment which was perhaps symptomatic of complacency.

Therefore, anything that one could have expected in terms of piercing through 5,400 or 5,500 did not happen. At the same time, there was no sharp correction that one has witnessed so as to break below 5,250-5,280.

But that may change because volatilities are rising and if 5,280 on the downside does get broken which looks likely because the number of components in Nifty which can hold it up is reducing almost every trading day. Then we will see that there could be a slide down supported by slightly higher volatility landscape.