The Hindu Business Line : Nifty may move either way

The outlook for the Nifty is mixed with put/call ratio and implied volatility pointing to divergent trends. If the spot Nifty sustains at the current levels, it might go up to touch 3010-3015 on the positive side.

THE Nifty is close to 3000 points. It posted smart gains (2.82 per cent or 82 points) during the week gone by.

Last week also saw the expiry of January contracts and the introduction of April contracts.

While the rollover of Nifty futures from January to February series was around 75 per cent, it was higher for stock futures at 80 per cent.

In value terms, the total open interest position on Friday (after the expiry of January contracts) was Rs 25,760 crore against the corresponding figure in January at Rs 23,000 crore.

Factors to watch: SBI Q3 performance that came out on Saturday (lower than market expectation) and rising crude price could influence the market direction this week.

Further the sharp run-up in the Nifty may also result in profit-booking.

Outlook for Nifty: The outlook for the Nifty is mixed with put/call ratio and implied volatility pointing to divergent trends.

If the spot Nifty sustains at the current levels, it might go up to touch 3010-3015 on the positive side.

On the other hand, if it fails to sustain at current levels, a dip below 2930 could take the Nifty to 2865-75 and further to 2810-15 levels.

Strategies: With the Nifty witnessing a sharp surge, we advice investors to be cautious by placing tight stop-loss levels.

Investors can consider the following strategies:

Go long on Nifty futures by placing the stop-loss at the day's low level at the time of entering into a deal.

Risk-averse investors can adopt the above strategy with Nifty 2800 put at the rate of Rs 13.85. If the Nifty begins on bearish note, investors can also consider buying the Nifty 2850 puts @ Rs 22.10.

As there are chances of the Nifty exhibiting a higher degree of volatility than is common, the advice is valid only for the first two days.

Volatility view: The implied volatility for puts declined to 19 per cent against last week's level of 21 per cent; on the other hand, calls IV increased to 20 per cent (18 per cent).

The gain in calls IV and the drop in puts IV suggest an upward bias for Nifty.

The annualised volatility is also higher at 21.5 per cent indicating that the Nifty may witness a volatile trend.

Put/call ratio: Open interest put/call ratio increased to 1.94 (1.46) while volume-wise PCR increased to 1.51 (0.82).

The jump in volume PCR indicates a lot of buying activity on the puts side when the market surged sharply last week. The increase in OI put/call ratio also suggests some squaring up of positions on the calls side besides additional puts open positions

Backwardation: This narrowed down sharply. While the Nifty futures closed the week at 2978.55, the Nifty spot ended at 2982.75, i.e. a discount of about 4.2 points.

Last week, the discount was 17.2 points for February contract. This also paints a positive picture.

(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

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