By Amit Gupta
The Nifty50 has held on to the highest Put base of 10,700 despite various attempts by the market to breach it on the downside. In the initial part of June series, the highest Put was placed at 10,600’ however from the second week of the month, 10700 strikes witnessed maximum Put writing which has been a major support so far. VWAP for this series is placed at 10,750 which remains immediate support.
The long addition of 8 percent in the open interest (OI) was seen in BankNifty after the banking index witnessed decline from 27,000 to 26,200 levels.
Select private banking stocks have come to the rescue of the index. The volatility has remained subdued indicating the positivity in the consolidating market.
The volatility has not increased despite the probability of higher rate hikes in the US. This shows the market is slowly absorbing the negative news flows.
In fact the lower Nifty Futures premium indicates the skepticism among the market participants.
This has led to shorts formation at higher levels of Nifty. Hence, if Nifty holds the higher level of 10,800, the short covering may be seen in the oversold stocks towards expiry.
Bank Nifty: The short covering trend is likely to continue
The volatility in the index remained high where Kotak Mahindra Bank along with HDFC Bank continued to provide support for the second consecutive week. Late buying on last Friday pulled the index well near 26,800 levels with participation also seen from other private sector and select PSU banks.
Trade war fear accelerated with India also retaliating with additional tariffs on few US imports. The depreciation of rupee also continued and made a high of 68.35 levels which added pressure to the index and triggered cautious approach among the traders.
This time again the Put writers provided decent support to the index near 26,200 levels. As the index moved up sharply, the Put OI shifted to 26,400 and 26,500 strikes which are the key support area for the expiry.
The intraday volatility is likely to pick up as we approach the expiry week but looking at the closure in Calls (26,600 to 27,000 strikes) we feel the current leg of short covering is likely to continue.
The price ratio of Bank Nifty/Nifty has moved towards 2.47 levels. We feel the ratio is likely to pick up the pace and the outperformance in the banking stocks can be seen once the index manages to close above the sizeable Call base of 27000.
Weakness in emerging market (EM) currencies continues:
Hawkish US Fed kept the rate differential play in place, wherein Dollar remained sticky near elevated levels of 95 during the week.
This further extended the pressure on EM currencies, which were down over 1 percent during the week (EM FX fell to its lowest level since Nov 2017).
The ripple effect was seen in EM equities that were down over 3 percent, underperforming the Developed market equities that were down less than 2 percent. The EM Bond also dragged lower during the week.
Emerging markets continued to see sharp outflows in equities during the third consecutive week. India witnessed outflows of USD 650 million, Taiwan USD 1.2 billion, South Korea USD 531 million. While Thailand and Malaysia saw outflows of over USD 350 million each.
In India, FIIs’ bearish bias continued. In Index future segment there was short addition especially in Bank Nifty which was almost over USD 350 million.
In the Index option space, buying trend continued as the FIIs bought options worth over the USD 1.29 billion. However, DIIs continue to support markets. DIIs poured almost USD650 million during the week.
In the upcoming week, the FIIs are likely to stay away from EM’s as the EM currency and equity continue to remain weak. The rate differential attractiveness of US continues to keep Dollar and US asset class stronger.
Disclaimer: The author is Head of Derivative from ICICIdirect. 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.
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