The Nifty Futures traded in a tight range of 5,330-5,190 (as on 13th April) with a positive bias in the first half of April expiry. The marginal gain in the Nifty futures in the last 15 days was mainly due to Finance Minister Pranab Mukherjee’s statement that P-Notes, which are associated with FII investments, will not be taxed in India and expectations of liquidity enhancement by the Reserve Bank of India (RBI).
At the beginning of the expiry, the RBI tried to improve liquidity in the banking system through open market operations. The RBI injected around `10,000 crore through this OMO with visible results.
Apart from this, the RBI is expected to take some more steps to enhance liquidity to tackle the slowdown in the economy, which is evident from the weak IIP numbers for January and February. India’s central bank is likely to announce these measures in the monetary policy review scheduled on 17th April.
Short covering in the beginning of the expiry, followed by long unwinding, together resulted in a 16% decrease in the Nifty Futures Open Interest (OI) in the first half of April expiry. Though the fourth quarter earnings season started on a negative note with weak earnings by Infosys, the earning season is expected to provide a positive impetus to the markets in the days to come.
The Put Call Ratio (PCR)-OI for Nifty Options has been subdued and is hovering around the 1.1-1.2 levels since the start of the April expiry. One can expect PCR-OI to stabilize at current levels and remain range-bound between 0.95 and 1.2.
On the Options side for April series, no aggressive positions were found either on Call or Put side. Slowly 5,200 Put have started seeing an addition in OI since the markets have started picking up, touching a low of 5,200 on the Nifty (as on 11th April). Moreover, if we look at the April expiry OI standing for Nifty Options, the highest OI for Call and Put is seen at 5,500 and 5,000 (as on 12th April), indicating a ranging market as per traders’ perception in coming days.
India VIX (Volatility Index), which measures immediate risk in the markets has remained subdued and is hovering between 20 and 23 levels. This indicates that the markets do not see huge volatile movements ahead of the Q4 earnings season.
This also implies that Options traders are not expecting much risk or downside in the markets. Going forward, we expect VIX to further come down to levels of 17-18. Hence, it is advisable not to go long on volatility (that is, one should not initiate long straddle or strangle strategies) in the month of April.
The Nifty has been fairly range-bound between 5,400 and 5,200-5,150 levels since the past few weeks and continues to trade with a sideways bias. In the immediate term, the 5,170 level is the cluster support for the Nifty since it is supported by the 200-Exponential DMA as well as 38.2% Fibonacci Retracement.
Any move above the 5,363 level on the closing basis for at least two trading sessions will take the Nifty towards the 5,450/5,480 levels. Till the time 5,170-5,100 level is intact, there is a strong possibility that the Nifty may attempt to scale higher.
However, the Nifty is facing a resistance at the 5,378 level, that is 50% Fibonacci Retracement resistance (5,621-5,135.95). Once it manages to close above the 5,378 level, at least for one more trading session, the upward trend will result for the target of 5,440/5,480 levels.
In an alternate scenario, if the Nifty breaches the 5,170 level on a closing basis, then further sell-off till the recent swing low of 5,135/5,100 is likely. Below that, a downside till the 5,050 level cannot be ruled out. Traders with long positions are advised to hold on to their existing long positions and protect their capital with a strict stop loss of 5,170.
The Bank Nifty has taken strong support of the trend line in the daily chart, that is 9,940. The index has managed to breach the crucial hurdle of 10,250 level and if it sustains above this, then you can expect it to rise to 10,500 and 10,630 levels. The support resides at 10,010/9,940 levels on the downside.
Strategy for April ExpiryWith an anticipation of a stock -specific action in the second half of April, the Nifty is likely to remain in a tight range of 5,100 and 5,370. Short straddle on the Nifty would be the best rewarding strategy ahead of the April expiry scheduled on 26th April. It can be initiated by “selling 5200CE and 5200PE of the April series”. The net premium inflow comes above `170, which is also the maximum profit. The loss remains unlimited beyond the break-even range of 5,370-5,030 on the Nifty.
Source: Nirmal Bang's Beyond Market
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