Derivative traders hint at 5,100 as a crucial level for the Nifty. On Wednesday, Nifty closed at 5,124 or 60 points higher than Tuesday. According to derivative analysts, the 50-share benchmark index may need to remain above the 5,100 level to keep the momentum alive and continue its move towards 5,300.
The Indian equity market had rebounded in the last one week, gaining 8% since August 26. In the last three trading sessions, the benchmark Indian equity indices have shown a relative resilience to their global counterparts.
However, experts believe higher implied volatility could play spoilsport that could pull market down. Implied volatility for Nifty is a market estimation of the volatility in the price of Nifty over the near term.
?5100-5150 could act as a crucial range for the Nifty since it coincides with an important retracement level for the market. Also, the higher implied volatility even for at-the-money options could act as a barrier for the market to swiftly move past 5150,? said Savio Shetty, derivatives analyst at Prabhudas Lilladher.
At-the-money Nifty options are basically options whose strike price is similar to that of the current Nifty price.
India VIX, a market measure of implied volatility, is currently at 27.86. While it has come down from the levels of 33.4, it touched on August 26, it is still at higher levels on an absolute basis as compared to past averages. In September so far, the VIX has averaged 27.6, its highest since February 2010.
However, analysts believe that if the Nifty?s remains above the 5,100 mark over the shorter term, it could push the index further towards the 5,200-5,300 range. In the past one week, strong activity in the cash segment is driving the equity market amidst strong FII buying in the segment. According to Vishal Jain of ICICI Securities, short-covering in some of the frontline stocks along with substantial FII buying in the largecap space in the cash segment has added to the market gains.
?Given that September futures of a number of largecap stocks are trading at a discount to the spot market prices, it indicates that FII are buying in the cash market. If the current impetus sustains, then Nifty could look to move towards 5,200-5,300 range,? he added.
This view is substantiated by the improvement in the volume activity of the cash segment. So far in September, the average daily turnover clocked at R12,472 crore, highest since April.
Further, the September futures of 30 of the 50 Nifty constituents, closed at a discount to their spot prices even as the stock prices in the cash market went up on Wednesday. In the last four trading sessions, the FIIs have brought R2,221 worth of Indian equities.