F&O Manual | Banks take Nifty down after RBI policy but bulls keep their hopes up

Max Financial, which is getting investment from Axis Bank, saw long buildup, followed by India Cement and Trent.

As banking stocks reacted sharply to the Reserve Bank of India’s announcement to keep an incremental cash reserve ratio (CRR), they also dragged the headline index lower on August 10. As of 11am, the Nifty 50 index traded at 19,536.40, down 0.49 percent. Nifty Bank was down 0.65 percent to 44,590.

Starting fortnight of August 12, banks will have to maintain an incremental CRR of 10 percent. This is intended to absorb the surplus liquidity that has been generated and is purely a temporary measure to manage the liquidity overhang.

Option data shows a sharp increase in call writing for the day. The 19,600 level is emerging as a big hurdle for the index while put writers have fled to lower levels. Supply pressure was also seen at higher levels.

Not all traders see a big negative in this knee-jerk reaction. “This is just a sideways correction. There is no reason for a big fall,” said Rahul Ghose, a Mumbai-based algo trader. “We have 19,600 done in-the-money short straddles.”

ICICI Securities had, for the day, expected volatility in Bank Nifty due to the RBI policy outcome. Looking at the option data, it expected Bank Nifty to face resistance at the higher levels as 45,000 Call holds significant open interest.

Among individual stocks, selling pressure was seen in Granules India, Gujarat Gas, Asian Paints and Mahanagar Gas. Max Financial, which is getting investment from Axis Bank, saw long buildup, followed by India Cement and Trent.

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