Derivatives and the structure of the Nifty are positive but some caution is required after a relentless rally of the past two months.
The Nifty started the July series with some long positions. It started moving higher from initial days of the new series. The July series was dominated by the bulls as the index continued to make higher highs – higher lows. The Nifty concluded the series a tad above the 11,100-mark, with gains of 7.9 percent over its June expiry close.
The Nifty posted first consecutive F&O series gains of 2020 on back of sharp rally in IT counters and index heavyweight Reliance Industries. The upmove was supported by long positions but most of these positions did not get rolled to August series as open interest decreased marginally (2.08 percent) on series-on-series basis.
Rollover in the Nifty stood at 77.59 percent, which is lower than the previous month’s rollover but higher than its quarterly average of 75.3 percent.
The rollover data clearly indicates that some of the long positions formed in the last couple of months are still there but overall, positions are on the lower side and a high rollover figure is mainly due to low base of open interest.
India VIX continued its southward journey for the fourth consecutive month. It fell by around 17 percent to conclude the July series at 24.73 levels. Lower volatility also helped the index make higher base as India VIX remained in a broader range of 20 to 31 in the July series.
Foreign institutional investors (FIIs) activity remained subdued in the cash market segment as they cumulatively sold equities worth Rs 1,241 crore. Domestic institutional investors (DIIs) sold equities to the tune of Rs 6,059 crore.
On the other hand, FIIs exited their short positions and did some fresh buying in index futures and as a result, their ‘Long Short Ratio’ of index futures increased from 42.43 percent (June expiry) to 66.31 percent (July expiry).
On the options front, we are seeing OI concentration at 11,500 and 12,000 Call options, while 11,000, 10,000 and 10,500 Put writers are also active.
Options data suggests a positional wider trading range between 10,400 and 11,600 zones. Overall, derivatives and structure of the Nifty are positive but some caution is required after a relentless rally of the past two months. One should remain positive on market with hedged positions.
A sustained move below 11,000 may result in a corrective move towards 10,750 and then 10,600 levels. Thus, traders should closely track the price action around the 11,000 – 11,050 zone. However, if there is a dip towards, 10,600-mark in coming weeks, then that should be used as a buying opportunity.
The Bank Nifty was lacklustre in the July series and small bounces were sold-off quickly. It underperformed the benchmark indices and concluded the series with negligible gains. We witnessed mixed positions in the banking index.
It saw a rollover of 75.3 percent, which is lower than its three months average of 81.11 percent. Most of the positions formed in July series are now out of the system as open interest has increased marginally by 3.76 percent on series-on-series basis.
The Bank Nifty is light on positions and further OI build-up in the coming days shall provide a directional move in the index.
As far as the levels are concerned, 20,900 is immediate support for the banking index and a sustainable move below the same may lead to a fall towards 19,500. On the flipside, strong resistance can be seen around the 23,500 – 24,000 zone.
On stocks front, we witnessed good amount of long positions getting rolled to the August series in counters like Ramco Cement, TCS, SBI Life, Apollo Hospitals, ACC, Dr Reddy's Lab and UltraTech Cement. While some stocks which added shorts are Zee Entertainment, Bharti Infratel, REC and Interglobe Aviation.
Note: This note is just an interpretation of derivatives data and not trading advice.
(The author is Technical & Derivatives Analyst, Motilal Oswal Financial Services)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.