The Hindu Business Line : Nifty future may see downward drift

The Nifty spot closed at 2808 points. This relative poor show by Nifty future, particularly during the later part of week may be attributed to the lack of follow-up buying.

Rollover of positions however has been quite healthy this time around.

For that matter, the rollovers started earlier this time than what has been the case in the last three-four months.

Nifty rollover was pegged at about 34 per cent and was mostly on the long side.

As for individual stocks, it was stocks in the metal pack such as Hindalco, Sesa Goa, SAIL and Tata Steel that saw a sharp accumulation in next month series.

Follow-up

We had advised traders to consider short straddle using 2700-strike. Considering the opening (on Monday) and closing (on Friday) prices, the strategy has ended on a slightly negative note.

Outlook

The Nifty future appears critically placed now. As has been written earlier, it faces a strong resistance at 2850-2875 levels, breaching which its next resistance is placed at 2950-2975 levels. On the other hand, if Nifty futures weakens from the current level, it is likely to find support at 2750 first and then 2680 levels. That said, we expect the Nifty future to open on a calm note on Monday and weaken going forward. Any excessive selling in the market may also take the Nifty future to 2550 though in between it has support at 2750 and 2680.

Option monitor

Options’ trading presents a positive bias for the market. The April 2800, 3000 and 2900 calls were the most active and saw accumulation in long open positions last week.

Among the puts, 2600, 2700 and 2800 in April series were the most active, but they added short positions, indicating that Nifty could face strong support at every dip.

Volatility Index

India VIX or Volatility Index, which measures the immediate expected volatility, weakened further to 34.86 (35.57) - the second lowest level since January 23, 2009. This fall points at a positive bias for the market, indicating that a significant plunge in Nifty future may be rather remote.

Recommendations

For the coming week, we suggest traders the following strategy.

Consider going short on Nifty future if the market opens on a calm note on Monday. You can then keep a stop-loss at 2850; but remember to adjust the stop-loss progressively. If Nifty future fails to pierce 2750, it has the potential to bounce back to 2950. So, this strategy is only for traders who can stomach high risk. Besides, since the coming week is also the settlement week for the current month derivative contract, traders may also have to brace themselves for heightened volatility in the market.

FII trends

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on March 19, declined to 35.68 per cent. They were predominantly net buyers in the F&O segment last week. They now hold index futures worth about Rs 8,239 crore (about Rs 7,710 crore) and stock futures worth about Rs 14,108 crore (about Rs 12,701 crore). Their index options jumped to about Rs 25,066 crore (about Rs 21,033 crore).

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