The Hindu Business Line : Cautious outlook for Nifty future

A sudden wave of selling arrested the bull momentum for the benchmarks last week. Both the Nifty and its December future contract witnessed a decline of 4.8 per cent. Rollover of open interest from the December to January series was healthy at 45 per cent for index futures though most of these were short positions.

Stock futures, on the other hand, saw a moderate rollover of 32-35 per cent. Open interest positions jumped to Rs 1,16,549 crore from last week’s Rs 1,15,565 crore. Trading remained lacklustre for most part of the week.

Follow-up: Anticipating some downward pressure, we had advised investors to consider going short on the Nifty December future while retaining the stop loss at 6092 levels. We had also presented an alternative strategy of buying Nifty 6000 puts. Both the strategies worked well and yielded handsome gains.

Outlook

The sentiment has turned cautious; the trading pattern on Thursday and Friday displayed a guarded mood, though the Nifty benchmark ended in the green. To reverse this sentiment, the Nifty future needs to cross the 5950 mark initially and to confirm the bull rally it has to strongly move past 6050-6075 mark.

On the other hand, a dip below 5650 would make the market vulnerable to selling pressure though the future has minor support at 5735-40 levels. The chance of the Nifty future opening on a strong note appears bright though it would be difficult for it to sustain the momentum. Besides, the fact that we are entering settlement week and the Gujarat election results would ensure volatile trading patterns.

Recommendation

We advise investors to adopt a cautious stance as volatility, particularly intra-day, may be high. Staying away from the market could be prudent. Those who have a high-risk appetite can consider going long on the Nifty future keeping the stop-loss at 5,750.

As we expect volatility, we advice investors to consider booking profits, however small they may be. This recommendation is valid only for the first two trading days — Monday and Wednesday (Tuesday being a holiday on account of Christmas).

Implied volatility

Implied volatility (IV) of puts and calls remained firm at around the previous week’s levels. While puts IV remained firm at 32 per cent (31 per cent), calls IV weakened to 27 per cent (30 per cent). A drop in calls IV suggests that calls positions were squared off when the benchmark declined sharply on Monday and Tuesday.

Stock futures

Lanco Infratech: We had advised investors to consider going short on Lanco Infratech with a stop-loss at Rs 840. We had indicated the support level at Rs 755 and a drop below that could weaken it to Rs 690-695 level.

As expected, the stock turned weak and is currently ruling around the support level. The position ended the week with good gains.

IFCI: While it faces resistance at Rs 82, it finds support at Rs 60. We advice investors to go short on the counter as the possibility of the stock touching the support level appears high.

FII trends

Cumulative FII positions as a percentage of total market positions on the derivative segment as on December 19 was 35.10 per cent (35.08 per cent on December 13).

FIIs continued their selling last week as well in F&O segment, particularly in index and stock futures. However, they remained net buyers in index options, suggesting that they expect volatile conditions to persist. They now hold index futures worth Rs 20,953 crore (Rs 18,524 crore) and stock futures worth Rs 50,450 crore (Rs 51,646 crore). This indicates that they have added short positions on index futures while they exited some positions on stock futures.

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

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