Buy, sell or sit on the fence? What should you do as Nifty expiry approaches

Market volatility is expected to increase going ahead as the scheduled expiry of June month derivatives contracts is around the corner.  The June month contracts for Nifty will expire on Thursday this week and the traders may square or rollover their positions.

The economic data and inflation trends across the world are also adding to the volatility. The market has been extremely sensitive to central bank's commentary on interest rates, concerns over possible recession and fluctuation in forex markets.

So, what should be your strategy to deal with the volatility during the week?

Siddarth Bhamre, Head of Research, Religare Broking, said usually the last five days of expiry dictates the rollover trend and that in turn for the first few days of the new series.

“In the last 2-3 days when Nifty dipped towards 15,500, FIIs have been buying index futures. So with this as a support we feel traders would position themselves in the bullish mode for a target of 15,900-16,000 in the short term,” he said.

The positive impact of the position taken by foreign investors is already visible. On Monday, buying interest in beaten down metal, auto and IT stocks lifted benchmark share indices by over 1 percent.

Compared to the last expiry, Nifty is down by around 3 percent after seeing some intervening volatility. Deepak Jasani, Head of Retail Research, HDFC securities also pointed out that FPIs have started reducing their short positions (74 per cent now vs peak 89 per cent on June 14) in line with recovery in global markets, though they continue to be net short.

“Nifty open interest has risen 11 per cent in this series while the markets have fallen suggesting short buildup. In case Nifty manages to close above 15,886, we may witness faster short covering and rise in indices,” he added.

However, he believes that the current or any subsequent buying could be a mirage.

“Markets are witnessing a bounce which could be a bear market bounce,” said Jasani. “If this is the case, then long traders can buy with strict stop losses, while investors can prepare a list of stocks that they should be selling in this bounce to raise cash.”

Nearly 80 percent of the stocks listed on the bourses are down over 20 percent from their 52-week highs. However, there are select stocks from across sectors - including auto and energy  -  that have outperformed the wider market.

Referring to ongoing market volatility, Bhamre siad, any volatility is investor’s friend. “Stock pickers should take advantage of this volatility to accumulate stocks in a staggered fashion. However one will have to be very stock specific in this market,” he added.