Nifty seen in 22,350-22,700 range as May rollover shows FIIs cautious, pruning long positions

Emkay said ICICI Bank remains our preferred pick in the banking space, givenits superior returns profile , top-management credibility, and strongcapital/provision buffers.

A mix of long and short rollovers to the May series is hinting at increased hedging by investors against volatility due to general elections and earnings season, projecting the possibility of a rangebound move for the Nifty 50 in the new monthly derivatives series.

This is a continuation of sorts for the benchmark Nifty 50, which lost momentum in the second half of the April F&O series to settle with marginal gains of 1 percent after scaling new peaks in the first half.

"May is gearing up to be an action-packed month with general elections in full swing, and the anticipation of all possible outcomes could lead to heightened volatility in the market," Nuvama Alternative & Quantitative Research says.

Meanwhile, the Q4 earnings season is also set to gather pace in May, which is another likely reason to have triggered some caution among investors.

As per Religare Broking, the rollovers of positions to the May F&O series of Nifty futures stood at around 65 percent, which is lower than the 70 percent seen in the prior series.

"The long ratio of foreign institutional investors is now at 40 percent, as against 45 percent in the previous series which implies more hedged positions as we enter into the May series," Religare Broking noted.

The data reflects a cautious approach adopted by FIIs by lightening their long positions, which were hedged with index shorts.

Based on the rollover data, Abhilash Pagaria, Head, Nuvama Alternative & Quantitative Research, anticipates the Nifty 50 to trade within a narrow range of 22,350 to 22,700 initially, with more significant action unfolding in specific sectors and stocks.

"Post the immediate consolidation, the benchmark should move towards new all-time high before elections results. If any decline till 21,900 should be used as an opportunity to go long," Pagaria added.

Meanwhile, historical data over the past decade also tilts towards a favourable seasonality for May, with the Nifty settling in the green 70 percent of the time with average returns of 2.5 percent.

Among sectors, analysts expect automobiles, chemicals and banking to outperform while the small and midcap segment is also likely to fare better.

As per Motilal Oswal Financial Services, the Nifty 50 now has to hold above 22,500 for an upmove towards 22,750 followed by the 23,000 mark. As for the downside, the brokerage pegged support levels at around 22,300 followed by 22,100.

Overall, MOFSL expects the Nifty 50 to continue with its bullish bias wherein any small declines could be bought in cash in the move towards 23,000 and higher levels.