India VIX hovered near 30 and continues to remain beneath its short and medium-term averages.
Indian markets made up handsomely for their recent underperformance against global peers, as the Nifty rallied around 15 percent from the previous week’s low and about 35 percent from March’s low of 7,511. However, it retraced more than 50 percent of the previous decline from its record high.
The Nifty’s price action needs to be monitored closely as 10k could act as a pivot point from a near-term perspective. Sustenance above 10k, which is physiologically an important level, near previous swing high above the 9,900-mark, and larger call concentration seen on 10k strike on monthly series is essential to gain further momentum on the upside. The inability to do so, ie sustenance below 10k, can drag the index lower to revisit the 9,700 level.
The Nifty’s coming weekly expiry shows maximum open interest concentration at 10,500 call and 9,500 put strikes.
Scattered buildup across the strikes indicates that in the near term traders expect both side swings, given volatile swings seen in high beta space.
In the May series, the Nifty lost 3.75 percent, while the Bank Nifty lost 11 percent. However, the recent outperformance shows a catch- up move will continue for banking stocks.
The Bank Nifty rallied 26 percent from recent lows but for the current year, it is still down by around 37 percent against the Nifty’s 18 percent decline.
Bouts of short-covering on banking and financial stocks caught traders fancy, as aggressive call unwinding with put writing was seen during the week.
In the previous session, the Bank Nifty reclaimed levels of 21k but failed to surpass April’s peak, thereby displaying negative divergence with respect to the Nifty.
We expect the Bank Nifty to face significant hurdle between 21,500 and 22,000 and is likely to remain volatile in the short term.
India VIX hovered near levels of 30, it continues to remain beneath its short and medium-term averages.
On the sectoral front, long additions are visible in media and oil & gas space, while fresh shorts are seen in banking and financials.
FIIs’ derivatives stance remained bullish from the start of June series as the index futures long to short positions favoured bulls, with ratio moving to 1.68x levels, significant long additions on stock futures were seen in the past couple of days.
We expect markets to retrace in the near term but downside likely to be limited for the Nifty. Options writers are likely to remain sideways as delta moves along with possibility of a vega rise is higher in the near term.
Gold prices are likely to remain within a range while silver could outperform from a near-term perspective.
USDINR currency pair continues its range-bound action, with overhead resistance near 76.50. US key indices future continues to trend higher.
(The author is Senior Derivatives Analyst at YES Securities.)Disclaimer: The views and investment tips expressed by experts, broking houses, rating agencies on Moneycontrol are their own, and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.