F&O expiry signals calm before the storm; Nifty breakout likely soon, say traders

The RBI is widely expected to hold rates steady

On Thursday’s weekly F&O expiry, the Nifty staged a modest rebound, reclaiming key short-term averages and closing above the previous day’s high for the first time in over a week. Yet, with option data showing persistent resistance at the 25,000 mark and muted participation from heavyweight private banks, the index stayed locked in a tight range ahead of Friday’s RBI policy announcement. Traders appear to be bracing for a decisive trigger, as declining volatility and a historically low FPI long-short ratio suggest that the market is positioned for a breakout but remains uncertain on direction.

The options market reflected this cautious optimism. Put writers were active around the 24,500–24,600 range, helping the Nifty build a base, while consistent call writing near the 25,000 mark signalled stiff overhead resistance. Meanwhile, cooling volatility and a historically low FPI long-short ratio hinted that market participants are bracing for a decisive move — one that could be triggered by the central bank’s tone on inflation and liquidity.

“Despite the recovery, the index continues to oscillate within the narrow consolidation band of 24,900–24,450. A convincing follow-through to today's positive momentum could finally pave the way for a directional breakout,” said Dhupesh Dhameja, Senior Derivatives Analyst at SAMCO Securities.

The Max Pain for Nifty aligned closely with the 24,700 mark, where the index spent most of the session. Analysts see this as a sign of market equilibrium and the potential launchpad for a near-term rally, if macro signals align.

One of the clearest signs of trader caution was the continued drop in the India VIX, which declined over 12% in the last three sessions and ended below 14. This sharp cooling in implied volatility, despite a major event risk, reflects both reduced hedging demand and a volatility crush post-election.

Also supporting the case for a sharp move is the fact that the FPI index long-short ratio remains near multi-month lows - the ratio hovered just above 20%, its lowest level in over five months. Thus, implying that overseas investors are holding disproportionately large short positions in index futures. If the RBI’s commentary surprises positively, the market may see aggressive short-covering.

“The FIIs long-short ratio is hovering near 20%. Now the index has to hold above 24,700 zones for an up move towards 24,900 then 25,100 levels,” said Chandan Taparia, Senior VP, Derivatives Research at Motilal Oswal.

On the technical front, momentum indicators are also starting to support the bullish case. Om Mehra, Technical Analyst at SAMCO Securities, noted that the RSI is rebounding from the neutral 50 zone, “hinting at a shift toward positive momentum.” The MACD is also showing early signs of bullish realignment.

Bank Nifty remained more muted during the session, forming a Doji candlestick on the daily chart. While it managed to hold above the 55,300 support zone, the index failed to sustain intraday rallies, indicating indecision. Notably, the Nifty Private Bank index continued to underperform, while PSU banks showed relative strength — signalling a divergence in participation ahead of the policy.

The RBI is widely expected to hold rates steady, but commentary around inflation trajectory, surplus liquidity, and potential shifts in policy stance will be closely parsed for cues. For now, the options market setup suggests that both upside and downside risks are tightly coiled—and the market is simply waiting for a spark.

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