The Hindu Business Line : More steam left in Nifty futures

Critical factors
Nifty futures discount narrowed down considerably
Implied volatility jumps for calls over 55 per cent
Trading volumes improved on account of nearing settlement period

Nifty futures maintained strong momentum last week too. The spot Nifty closed at 4083 against the previous week's 3917.35.

Nifty futures also closed its gap (discount) with Nifty index.

There was smooth accumulation of open interest positions presenting a positive sentiment; overall open interest positions moved up to Rs 58,108 crore from last week's Rs 51,878 crore.

Expecting a bullish momentum to sustain, we advise investors to consider long positions in Nifty futures, those who had adopted this strategy would have gained smartly. As an alternative strategy, we had also recommended buying Nifty 4000 calls. This strategy would have also yielded handsome gains.

Outlook

Nifty futures may be heading for an all-time high level this week. The positive outlook remains valid as long as it stays above 3850.

However, this being the settlement week, we advise investors to remain cautious, as markets tend to be volatile. Besides, results season may also add to the volatility.

Expecting a bullish trading pattern to continue, we advise investors to consider going long on Nifty futures keeping a stop loss a day's low level. Adjust the stop loss suitably trailing Nifty futures so as to maximise profits.

Alternatively, investors may also consider buying Nifty 4100-call @ Rs 31, as Nifty may remain positive in the first couple of days.

Put/call ratio

Open interest put/call ratio increased to 1.28 against the previous week's 1.05 while volume wise increased to 1.18 (1.05).

This indicates that a lot of calls positions were squared off when Nifty edged up sharply. Also a few put positions (particularly in 4000-strike) were added as a hedge.

Implied volatility

IV displayed a divergent trend for calls and puts. While puts IV remained firm around 32 per cent, calls IV jumped to 56 per cent (33 per cent).

The firmness in calls implied volatility suggest that lot of calls positions were added in anticipation of further rally in Nifty. During early March, calls IV jumped to around 96 per cent while during last June it ruled above 100 per cent.

But on both these occasions the market fell drastically.

Backwardation

The discount of Nifty futures has been narrowing down through out the week; it now trails the spot Nifty by about six points only as against by about 21 points last week. This indicates that not only that a lot of short positions were squared off but also that a few long positions were added.

Satyam Computer: We had indicated a possible trend reversal in the stock and had advised investors to go short on the stock, keeping a stop loss at day's high level.

Those who had gone short on the stock could have made a decent profit, as it touched our targeted level of Rs 455 during the week though managed to cut some losses to close at Rs 476 against last week close of Rs 481.

SAIL: The stock had a sharp run-up recently. We expect a trend reversal in this case too. It finds initial support at Rs 126 failing, which it might test at Rs 115-118 levels. We advise investors to consider going short on the futures, keeping the stop loss at day's high level. Allow the market to settle down and then enter.

Investors have to be cautious as the stock might bounce back quite sharply. Market lot is 2700 contracts per unit.

FIIs trend

The cumulative FII positions as percentage of total gross market positions on the derivative segment as on April 4 increased marginally to 36.5 per cent against last week's 35.95 per cent.

As the market bounced back sharply, it seems retail investors have closed out their positions.

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

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