Moneycontrol
Last Updated : Mar 03, 2019 12:24 PM IST | Source: Moneycontrol.com

'10,750 will act as strong support for Nifty in March series'

We believe that ongoing positive bias will continue in Nifty with major support around 10,700 levels.

Moneycontrol Contributor @moneycontrolcom

Amit Gupta

The Nifty50 declined from 10,950 towards 10,750 during the week, but it recovered from the lows towards the end of the week. The mid-cap and small-stocks remained the star performers during the week.

The appreciation in the rupee and cool-off in volatility were the prime reasons behind the stability in the broader markets in the second half of the week.

The Nifty50 has started the March series with 14.2 million shares, which is significantly lower and is the lowest seen in the last 3 years.

Continued range bound movement in Nifty may be the reason behind low open interest (OI) in the next series. However, the roll spread in the Nifty continues to inch higher and it was above 60 points.

The current roll spread is also one of the highest seen in the last four years. Data indicates a lack of short rollover in the index. We believe fresh open interest addition in Nifty futures may be seen if it moves out of the range.

The Nifty is starting the series with major Put base at 10,700 and Call base at 11,000 strikes. While the Put base at 11,000 strikes is higher than the Call base placed at the same strike. We believe that ongoing positive bias will continue in Nifty with major support around 10,700 levels.

Among heavyweights, auto companies saw high rollover of short positions while select private sector banks observed continued accumulation of long positions. Oil marketing companies and FMCG stocks are starting the series with relatively lower open interest

Bank Nifty: Possible consolidation can be seen near 27,200 levels

As the cross border issue escalated between India and Pakistan, the volatility moved at monthly high and touched 20 percent mark.

A stock like HDFC bank along with few other private sector leaders witnessed profit booking. However, on the last day of the week, short covering was seen in the PSU and mid-cap banks.

Bank Nifty started the March series at lower OI base whereas the rollover spread (basis) remained at 180 points which are at two-years high.

Due to lower leverage position, buying interest can be seen near the weekly low of 26,800. However, possible consolidation can be seen as follow-up buying generally gives a miss in such higher premiums (157 points).

Despite Nifty and the Bank Nifty witnessing some decline, the price ratio of Bank Nifty/Nifty was moving up due to the resilience of the banking stocks.

The price ratio remained above its support level of 2.47 which was also the low for the February series. We feel stock specific action can be seen and the ratio is likely to consolidate for a few weeks.

As the IV’s contracted from 20 percent mark, Put writing interest came in OTM strikes. OI concentration was seen in 26,800 strike which is the key support area.

However, Call OI is well distributed from 27,200 to 27,500 strikes indicating that the index is likely to consolidate with a positive bias.

EMs YTD up move, pricing in most positives

Constructive US-China trade talks has outweighed the deteriorating global economic data that recently came out of key global economies.

The risk-on sentiment has also been supported by (a) massive credit expansion by China and (b) Fed’s caution over the pace of balance sheet unwinding.

This trifecta has provided support to risk assets, including equities and most equity markets continue to build on gains of the first 8 weeks of 2019.

Emerging markets have been riding high on this wave with stronger domestic currencies (weaker Dollar), which has attracted in strong inflows in Equity and Debt segments.

Fund flow picture remains mixed in most EMs.

While inflows were in the vicinity of $658 million and $600 million in Taiwan and India, respectively. Thailand and South Korea saw outflows in the vicinity of $150 million each.

The risk-on tone could continue at a tapered pace as most headwinds at the start of 2019 (Hawkish Fed, US-China Trade spat and China slowdown) have already been addressed and thereby factored my risk assets.

However, as there is no major deterioration in risk environment the positive bias for risk assets and EMs could continue.

Ongoing Brexit negotiation would remain the key risk with a vote in UK parliament on March 12. For India-centric flows, de-escalation in Indo-Pak border conflict holds the key.

(The author is Head of Derivative from ICICIdirect.)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Mar 3, 2019 11:43 am
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