Centrum expects continuation of ongoing rally towards 11,100–11,200 level and thus any correction towards 10,600 should be used as buying opportunity
November has been the best series since March 2016 as the benchmark indices rallied more than 7 percent and the Nifty rallied from 10,000, the crucial level defended by Put writers, to 10,850 levels.
After an initial volatility in November series, market rallied on the back of fresh buying as well as short covering in index futures. Steep fall in crude prices, which resulted into sharp recovery in the rupee, global growth concerns and Federal Reserve's dovish comments indicating no rate hike boosted investors sentiment.
"The November series started with good amount of short positions as the rollover from October series was higher than its average. After the sharp fall in October expiry, we witnessed some selling pressure in the first couple of days of November series too. But the Nifty 10,000 Put writers defended their territory and as a result, Nifty started rebounding piercingly from 10,000 mark," Centrum said.
The index continued to make ‘Higher Highs Higher Lows’ as the month progressed and eventually concluded the November series with a massive gain of 7.25 percent over its October expiry close. After March 2016, this is the biggest rally in the Nifty in an expiry month, it added.
After the sharp fall in last two months, the Nifty recovered half of the damage seen from its top of 11,760. Last month was completely dominated by the bulls as all the small corrections got bought into quickly.
The rollovers in the Nifty stood at 71.23 percent, which is above its quarterly average of 68.90 percent while the market wide rollover was at 84.79 percent, which was higher than quarterly average of 86.9 percent. On month-on-month basis, the open interest has decreased by 10.79 percent.
Centrum said the rollover data indicates that the longs formed in November series got rolled to December series, though low roll cost suggests that some of the penultimate month's shorts are also still intact in the system.
Looking at the above derivative data, the research house expects continuation of ongoing rally towards 11,100–11,200 level and thus any correction towards 10,600 should be used as buying opportunity.
As expected, the roll spread in the Nifty remained under pressure during the week gone by and moved towards 30 points suggesting short rollover.
ICICI Direct believes these short positions will provide cushion to the Nifty in any intermediate decline in the coming sessions.
The Nifty is starting the December series with major Put base at 10,500 and Call base at 11,000 strike.
Nifty 10,900-11,300 call writers are active, while we are witnessing good amount of fresh positions getting formed in 10,500-11,000 Put options in the December series. Highest open interest in December series is placed at 10,500 & 10,200 put, and 11,000 & 11,500 call options, respectively.
Hence, despite upcoming events, ICICI Direct expects lower levels to be held in the Nifty.
FIIs, too, participated well in the ongoing rally as they formed good amount of long positions and did short covering in index futures. As a result, their ‘Long Short Ratio’ in index futures has increased from 29.20 percent to 51.40 percent. They bought more than Rs 10,000 crore worth of buying in November against more than Rs 39,000 crore of selling in previous three straight months.
On the other hand, DIIs bought equities worth Rs 6,201 crore in November series.
Sectorally, power, technology and banking stocks witnessed high rollover of positions while stocks from the oil & gas, capital goods and telecom space witnessed relatively low rolls into the December series.
The Bank Nifty continued its outperformance as it rallied by around 8 percent in November series. We witnessed good amount of long positions getting formed in banking index in the later half of November and most of them got rolled to December expiry.
The rollover in Bank Nifty (72.17 percent) above its last three months average of 70.08 percent. The open interest has also increased by 14.99 percent over its October series.
"The rollover data of Bank Nifty indicates continuation in the ongoing optimism towards 27,500–27,750 level in coming weeks. The Mid-cap PSU Banking stocks seen good amount of long build-up and healthy rollover gives us a sense of further rally in PSU Banking counters," Centrum said.
Highest rollover was seen in Siemens (99 percent), Ajanta Pharma (98 percent), GSFC (98 percent), V-Guard (98 percent) and PVR Ltd (97 percent) while rollover activity was relatively low in Indigo, PC Jeweller, Castrol India, MindTree and Nestle.Among index stocks, Sun Pharma, Wipro and Tech Mahindra witnessed high rolls into the December series while Asian Paints, Gail, Coal India and HDFC Bank witnessed relatively low rolls into the next series