Nifty is sustaining nearly 300 points above its 10 day exponential moving average while Bank Nifty is trading close to 550 points above the same on daily charts.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the upcoming week. Following are the edited excerpts from his chat:
5 trading sessions, 4 green candles in Nifty. We closed above 24,000 and sustained above the same on Friday. Does this open the door for any next big level? If yes, what level do you see?
In June, the benchmark index Nifty witnessed substantial volatility, trading within a 2,900-point range, the highest since March 2020. Despite this, the index surged over 13% from the election result day’s low of 21,281, reaching a new all-time high and closing the month above the 24,000 mark.
Remarkably, the index’s climb from 23,000 to 24,000 was the second fastest rally, gaining 1,000 points in just 23 trading sessions. It closed the week above 24,000, posting a gain of over 2%. Over the last five trading sessions, significant contributions came from heavyweight stocks such as Reliance Industries, HDFC Bank, ICICI Bank, Bharti Airtel, and UltraTech Cement.
We believe that for the next couple of trading sessions, the index is likely to slide into the period of consolidation after the sharp upside rally. Talking about levels, the zone of 23,750-23,700 is likely to act as immediate support for the index. As long as the index is trading above 23,700 level, it is likely to continue its northward journey and test the level of 24,300, followed by 24,700 in the short term. While any sustainable move below the level of 23,700 will lead to profit booking in the index. In that case, the zone of 23,450-23,400 will act as the next crucial support for the index.
What is your outlook on Nifty and Bank Nifty for the July series now?
Considering the current chart structure, derivative and rollover data, both indices are likely to continue their upward journey in the July series as well. The zone of 23,750-23,700 will act as a strong support for Nifty. While, for Bank Nifty, the zone of 52,000-51,900 is likely to provide cushion in case of any immediate decline.
What is the Open Interest data suggesting for Nifty and Bank Nifty? What could be the expected range?
Talking about Nifty, there is a notable concentration of call open interest at the 24200 strike, followed by 24,500 strike. While significant open interest on the put side is observed at the 24,000 strike, followed by 23,800 strike. As per the Straddle cost of ATM strike, the range for the next couple of trading sessions will be 24,300-23,700 level.
Examining the Bank Nifty option chain, it’s notable that there is a concentration of call open interest at the 52,500 strike, while considerable open interest on the put side is observed at the 52,000 strike. As per the Straddle cost of ATM strike, the range for the next couple of trading sessions will be 53,100-51,600 level.
What are the rollover trends suggesting for Nifty and Bank Nifty?
It’s worth highlighting that the Rollover for the Nifty Index futures was significantly higher at 76.25% compared to the previous month’s 71.76 % and the three-month average of 71.04%. Moreover, the rollover cost has witnessed a minor dip to 0.24% as compared to the three-month average of 0.57%.
The rollover for Bank Nifty futures has slightly improved to 70.68% as compared to the previous month’s 67.66% and the three-month average of 70.92%. Moreover, the rollover cost has also decreased to 0.30%, compared to the three-month average of 0.77%.
This clearly indicates that the market participants have rolled over bullish positions.
What is the seasonality analysis hinting for Nifty and Bank Nifty?
Tracking seasonality, over the past 17 years, the July month has often exhibited a positive trend for Nifty. On 13 occasions, the index has concluded on a positive note with an average gain of 4.56%, while on 4 occasions, it has ended on a negative note with an average loss of 2.49%.
Overall, average returns for the July Series have been 2.90% for Nifty. Over the past 17 years, July has consistently shown an average volatility of over 7.19 percent for the Nifty index.
Historically, Bank Nifty has also shown a positive trend in July over the past 17 years. Out of these, it closed positively 12 times, with an average gain of 4.57%, while ending negatively 5 times, with an average loss of 3.40%.
The average return for Bank Nifty in the July series has been 2.22%. However, Bank Nifty has demonstrated an average volatility of approximately 10 percent for the past 17 years for the month of July.
Looking at FII Positioning, FIIs are now net long while retail investors and DIIs are net short on the index futures. How do you read this for the markets?
FIIs are indeed highly net long. So much so that as of Thursday, at the end of the day, they possessed all the index long positions on a net basis. Approximately 76.14 percent of their long positions are against retail participants and 17.37 percent against the DIIs with the rest against the Pros. Generally, the FIIs position themselves in line with the prevailing market trend, and the current positioning indicates a strong bullish sentiment in Nifty.
What are your expectations from the India VIX with an event like the union budget?
India VIX is likely to surge as we approach closer to the Budget as the market participants hedge their portfolio against unforeseen developments. On the date of the budget, the fear index is likely to cool off, as seen in the July budgets of 2014 and 2019.
Let’s talk stocks for a moment here, with the upcoming budget, which sectors could one keep an eye on?
Considering the current chart structure, Nifty IT, Nifty Oil & Gas, Nifty Pharma, Nifty Bank, Nifty Financial Services and Nifty Auto are looking good from a positional standpoint.
Apart from the budget allocation across sectors, there is also an intention for the government to impose higher taxation on F&O income. How do you anticipate this update?
Indeed, the regulatory bodies are expressing concerns about the high leverage associated with F&O products and are seeking to curb the growing participation in this high-risk segment. In response, we may witness some incremental taxation for F&O transactions. In the event of such a development, market participants will need to adapt their strategies, shifting their focus from short-term, high-frequency trading to more sustainable, long tail events that prioritize risk management and astute investment decisions.
Also, on Thursday, SEBI stated that there will be a change in the norms of the entry and exit criteria for the stocks in the F&O segment. What could be the implications for the traders?
The new norms will make it more difficult for stocks to enter the F&O segment. Those Stocks moving out of the F&O segment could see reduced liquidity and trading interest. The last major review for introduction of stocks in Derivative segment was done in 2018 and since then the Derivative Segment has grown multifold.
The overall aim of this review by SEBI is to eliminate those stocks from the F&O space that are having consistently low turnover and thereby ensure higher liquidity in the stocks. This will also help eliminate the possibility of any manipulation in low liquid stocks and thus safeguard the interest of traders and investors.
Lastly, any index strategies for our traders out there?
Since the overall trend is positive, we recommend deploying a bull spread in Nifty by buying a 24100 call at 125 and selling 24300 call at 52. Net Outflow would be 73 points while maximum profitability would be 127 points on Nifty’s closing above 24300 on Weekly Expiry day.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
