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K.S. Badri Narayanan

SLUGGISH volumes in the derivative segment captured the indecisiveness of the market players as the market was stuck in a relatively narrow range, despite oil prices firming up at scorching pace.

Apart from low volumes, the widening basis between Nifty futures and the spot was the other highlight of the last week. However, rollover of open positions from August series to the September contracts was close to normal levels.

IT stocks such as Infosys Technologies and Satyam Computer attracted improved volumes.

Nifty outlook: The outlook for the Nifty is negative. Sentiment indicators such as put/call ratio, implied volatility and cost of carry present a negative outlook for the market.

Traders can consider shorting the Nifty futures or buying puts, if the Nifty gains from current levels. With the August month series due to expire this week, traders should use appropriate stop-loss levels, as the market tends to be volatile during the settlement period.

Volatility view: The implied volatility of the puts dropped marginally to 22 per cent from last week levels of 24 per cent. The IV for calls, however, dropped sharply to 16 per cent (24 per cent). The firmness of IV in Nifty puts and the weakening of the same for calls point a negative bias of the market.

A further weakness in implied volatility of calls and a rise in puts implied volatility would strengthen the likelihood of weak trends.

Put/call ratio: While the put/call ratio on volume basis on Nifty rose to one, the same on open positions-wise was at 0.82, a marginal fall from last week positions of 0.84. This suggests that traders squared up their puts' position when the market declined on Friday.

Despite the marginal fall in open positions put/call ratio, it still remains at a higher level indicating that the traders' negative perception of the market has not waned.

Basis: The basis between Nifty futures and the spot index, which moved into a positive zone a few days ago and stayed close to the spot levels after a long gap, has once again dipped into negative territory and started to widen.

This also portends a weak outlook for the Nifty, as traders are not willing to pay a premium for carrying forward their long positions.

Cost of carry: The cost of carry, which also turned into positive a few days ago, after a gap of several months, also slipped sharply confirming the negative outlook of the market.

Index movement: The Nifty spot index moved in the range of 1628.45-1577.25 before settling the week at 1590.35, a drop of 0.5 per cent over the previous week's close.

Nifty futures: The derivative segment witnesses higher trading volumes ahead of a settlement week; however, the average daily trading volumes last week declined to Rs 7,671 crore against the previous week's level of Rs 8,564 crore.

The August Nifty futures closed at 1586.15, a discount of 4.2 points to the spot close of 1590.35. Open positions slipped to 41,097 contracts from last week positions of 45,564 contracts. However, the positions were rolled over to Nifty September contracts, which closed the week at 1579.05 and in backwardation by 11.3 points to the spot. Open positions improved to 6,207 contracts against last week positions of 183 contracts.

Stock futures: The most active contracts were, Tata Motors, Tata Steel, Reliance, Infosys, Satyam Computer, ACC, Maruti and SBI.

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