Not much downside reaction in Nifty in near-term: Traders

As the Nifty languishes after touching a 14-month high of 5,815, the Street expects it to reach 5,600 to provide a strong support amid the beginning of the September quarter earnings season.

?Even as the market has corrected by more than 2% from its intermediate high, traders are likely to stick to buy on dips approach unless the Nifty fails to hold on to 5,600-5,550 range,? said Savio Shetty, derivatives trader with Prabhudas Lilladher. On Tuesday, the broader index closed at 5,652.15, down 52 points or 0.9%.

Market observers point out that the market is retracing some of its recent gains ahead of the September quarter results of largecaps like Infosys, HDFC Bank and RIL, due in the coming three trading sessions. However, given the expectations built in these results, there may not be much downside reaction in the Nifty in the near-term.

?There are no great expectations from the September quarter earnings. Unless any strong negative surprises, the market is likely to trade with sideways in the month given that it has already rallied nearly 15% in the last two months,? said another dealer.

According to traders, the Nifty may find it difficult to move past 5,650-5,700 in the near-term and move around. On the other hand, if the quarterly results continue to display a mixed bag with the impact of higher input cost and slowing demand, they see the Nifty extending its retracement towards 5,400, provided it breaches 5,600 on the downside.

?While at the moment Nifty?s stance indicates sturdy support near 5,580-5,600 levels. In the event that this key range is breached with conviction, the index could be looking to dip towards 5,400,? said Shubham Agarwal, AVP, Motilal Oswal Securities.

Agarwal predicts that even if the Nifty manages to surpass its latest high (5,815) in the coming weeks, the index is likely to come across a tough resistance near 5,910 mark, based on the trading pattern of the index.

These expectations are clearly factored in the derivatives positions of the traders. In the on-going October series options, the highest open interests are held by strikes of 5,900 on the call side and 5,500 on the puts side, defining the strong range in which the market could swing.

Further, on Wednesday, when the Nifty made an intraday low of 5,647, 5,700 calls added the maximum open interest of 13.6 lakh shares for any strike, indicating the immediate resistance that is likely to halt the index?s upside.