Quantitative data set up: Fall in Bank Nifty implied volatility rules out any major dip

Chandan Taparia

Greed and Fear Indicator: Volatility hovers around 24.5 levels (VIX CMP – 24.19)

India VIX fell by 1.39 percent from 24.54 to 24.19 levels. Any spike in volatility could cause some decline but overall, lower VIX is ruling out any major fall in the market for the time being. Nifty implied volatility (IV) remained consolidative for the most part of the week but decreased by 3.74 percent from 21.68 to 20.87.

CBOE VIX: CBOE VIX was down by 5.34 percent at 24.79 and is hovering around this level. It continued its decline for the sixth week in a row.

Fund Flow: FIIs continued buying for the third month in a row

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Chandan Taparia

Vice President and Analyst-Derivatives|Motilal Oswal Financial Services

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In the cash segment, though the FIIs were net buyers worth Rs 2,490 crore in July, in the last week they turned net sellers to the tune of Rs 1,311 crore. DIIs, on the other hand, have been net sellers worth Rs 2,445 crore in the week and Rs 10,008 crore in the month. On the FIIs derivatives front, there was short covering in index futures and long liquidation in stock futures. The Long Short Ratio increased to around 66 percent.

Safe Haven: Investors seek shelter under the safe haven (Gold, MCX CMP – Rs 53,500 per 10 gram)

Gold rose by 4.7 percent on a week-on-week basis driven by a rally in the global markets and a steady dollar. Gold is being used as a safe store of value during this heightened time of political and financial uncertainty and is up for the seventh month in a row and the eighth week straight.

Among other precious metals, silver surged up by 6.14 percent on a week-on-week basis.

Option Data: Nifty immediate range 10,800 to 11,400 (Nifty CMP – 11,073, Bank Nifty CMP – 21,640)

Nifty future closed the week with a marginal loss of 0.67 percent with a reduction in open interest by 13.90 percent on a weekly basis which indicates liquidation of long positions and some selling pressure/profit booking at higher levels.

During the week, Put Call Ratio based on Open Interest of Nifty swung between 1.31 to 1.83 levels and closed the week with weekly lower PCR of 1.31 which doesn't bode well for the bulls. Since it is the beginning of a new series, options data is scattered at various strikes. Maximum Put open interest is at 11,000 strike, while maximum Call open interest is at 11,500 strike. We have seen marginal Call writing in 11,500 and 11,100 strike while Put writing was seen at 10,500 then 10,200 strike. Options data suggests an immediate trading range of 10,800-11,400 levels.

Bank Nifty future closed the week with a loss of 4.07 percent with a reduction in Open interest by 2.12 percent on a weekly basis which suggests liquidation of long position as it failed to surpass 21,800 levels and drifted towards 21,375 levels.

Put Call Ratio based on Open Interest of Bank Nifty remained in between 0.63 to 0.90 and closed the week with PCR OI of 0.73 which suggests a grip of Call writers with multiple hurdles at higher zones. However, IV of Banking index has fallen and is hovering around 35 levels which is ruling out any major dip. Maximum Put open interest is at 20,000, while maximum Call OI is at 22,500 strike. We have seen Call writing in 22,000, then 21,500 strike while Put writing was seen at 21,500 strike.

India Rupee: Rupee brings upbeat mood (USD/INR CMP – 74.92)

The USD/INR was marginally up by 0.21 percent on a week-on-week basis. It has formed a descending triangle on the daily chart and is consolidating in a range. The greenback has been moving in a range and weak economic data is keeping the resistance intact.

Crude Oil: Oil waiting to move out of range (Crude Oil WTI, MCX CMP – Rs 3,035 per barrel)

Oil traded flat and was marginally down by 1.20 percent on a weekly basis and is consolidating in a muted range. Demand remains steady due to the rising concerns of the virus/unlocking of the lockdown. Prices are trading in a narrow range below its 200-DMA and indicate a flattish week ahead.

DJIA: Look out for key levels (DJIA CMP – 26,428)

The Dow Jones formed a Doji candle on a weekly scale and was down marginally by 0.15 percent. The indicators have turned down from the overbought zone in the weekly chart which suggests a flat week ahead.

Moving forward, Nifty has multiple support at 11,050 levels and hold below 11,050 could confirm more decline towards 10,900 and 10,800-10,750 levels, while on the upside resistance exists at 11,150 then 11,250 levels. Till Bank Nifty holds below 22,000 levels, weakness could be seen towards 21,000 and even lower levels while on the upside immediate hurdles are shifting at 22,250-22,350 levels.

The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

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