May series FnO rollovers show bullishness in banking, financial, capital goods stocks

May is gearing up to be an action-packed month with national elections on the horizon, and the anticipation of outcomes could lead to heightened volatility in the market

The May series commenced with Indian benchmark indices aiming for new highs. NSE Nifty 50 climbed above 22,650 intraday, while Bank Nifty actually made a fresh all-time high of 49,473.6 on April 29. The derivatives rollover data in the May series shows a huge open interest addition in the banking sector, with long build up also seen in banking, financial, capital goods stocks.

According to Nuvama Alternative, at the start of the May series, Telecom (Rs. 13,800 crores), Consumption (Rs. 7,700 crores), Energy (Rs. 10,700 crores), Realty (Rs. 5,500 crores), FMCG (Rs. 23,300 crores), and Banking (Rs. 83,000 crores) sectors witnessed significant OI addition.

FIIs’ long ratio now stands at 40 percent, down from the previous 45 percent in Index futures, implying a shift towards more hedged positions in the May series. Investors may be gearing for a range-bound index movement early in the new series, but later guided by election results.

“With HNIs starting the series with net long positions at a historic high, we anticipate the Nifty index to trade within a narrow range (22,350-22,700) initially, with more significant action unfolding in specific sectors and stocks,” said Nuvama Alternative in a research note. “Post the immediate consolidation, we should move towards a new all-time high before election results,” it added.

Long / Short trends (Nuvama research)

Long Build Up (Price/OI Change):

Akshay Bhagwat, Senior Vice President - Derivative Research at JM Financial, said, "Based on the rollover data for the May series, sector-wise strong rollovers seen in Banking, Capital Goods, Chemicals, Finance, Infrastructure, Metals, Textile whereas, short squeeze is seen in Automobile, Media, Oil & Gas, Power."

Financial Services:

• Public Sector Banks, as represented by the NSE PSU Bank Index, witnessed a robust 5.65 percent gain in April expiry, with State bank of India, showing notable long build up.
• Bank Nifty observed a 2.91 percent increase in April expiry, with Axis Bank and ICICI Bank showing significant long build up.
• HDFC Bank saw short covering.

• The NSE Energy index recorded a 2.48 percent gain in April expiry, with BPCL and NTPC showing long build up.
• ONGC and Powergrid saw short covering.

• Asian paints and Tata consumer witnessed long build up, amid a 0.63 percent gain in the NSE FMCG index for April expiry.
• ITC witnessed short covering.

• Maruti saw long build up, amid a 3.52 percent increase in the NSE Auto Index for April expiry.
• Eicher Motors, M&M, and Tata Motors witnessed short covering.

• The NSE Metal index soared by 11.93 percent in April expiry, with Hindalco witnessing long build up
• Coal India, JSW Steel, and Tata Steel saw short covering.

SBI: A strong breakout on price charts at 780 accompanied with a healthy roll of 86 percent hints at a positive price setup. Momentum indicators signal the rally to propel this Public Sector Bank giant near the 840/860 levels. OI build-up in deep OTM strikes also supports this theory. The view negates below 775.

BPCL: The Oil & Gas giant is on the verge of a price breakout above 625. Being in a consolidation phase last month, the price setup is hinting at possible accumulation in the 580-600 zone. With May rollovers seen at 92 percent at 0.8 bps higher than its 3-month average readings of 85 percent, the prices are setting up for a breakout above 625 for likely target zones of 650/675. The view negates below 572.

Federal Bank: This Bank from the private banking space is on the verge of a price breakout above 160. Being in a consolidation phase last month, the price setup is hinting at possible accumulation in the 155-160 zones. With May rollovers seen at 98 percent at 0.9 bps higher than its 3-month average readings of 93 percent, the prices are setting up for a breakout above 160 for likely target zones of 170/177. The view negates below 145.

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