The open interest of stocks in the banking sector touched a one-year high at the end of January series as the index saw 10% build up in long positions for the February series on expectations of positive announcements for the sector in the Union Budget.
According to a report by Nuvama Wealth Management, the open interest by value in Nifty Bank hit Rs 96,500 crore at the end of January series, highest since the same month last year. In this January so far, the Nifty Bank has gained around 0.6% due to a sharp rise of 2.5% in the last three trading sessions.
Anticipatory Budget Trade
Osho Krishan, senior analyst, technical & derivative Research at Angel One called it an ‘anticipatory trade’ ahead of the Union Budget to be announced Sunday. He noted that in the last couple of months PSU banks were cushioning the index but now private banks have also started to gain traction.
The Nifty PSU bank index has risen nearly 5% this month continuing its gains for a fifth consecutive month. Since September, the index has gained more than 31%.
In the last five sessions, Axis Bank has gained the most by 6.1%, Federal Bank 4.2%, ICICI Bank 2.56%, and HDFC Bank 1.65%. Meanwhile, PSU banks like Union Bank and SBI rose nearly 4%. Krishan added that while PSU banks will continue to perform, gains in the Nifty Bank will be driven by private banks.
According to him, 61,000-61,500 points is a conservative target for the index at the end of this series. On Thursday, the index closed at 59,957.85 points.
For the Nifty 50 index, he expects Sunday to be a volatile session. In the next two weeks, Nifty is expected to reclaim 25,000 level and any positive development in the budget will help it touch its record high. The weight of banks comprises nearly a third of benchmark Nifty 50.
Rollover and Seasonality
At the end of January Nifty futures rollovers stood at 71% compared 72% in the last three series, according to Nuvama. It noted that historical seasonality remains weak, with February showing a 70% probability of negative returns for both the Nifty (avg. -1.9%) and Bank Nifty (avg. -1.4%).
However, it said the recent sharp correction in SMIDs—small caps down over 6%—has improved risk-reward, and oversold conditions may trigger stock-specific relief rallies. “The next meaningful catalyst could emerge from the upcoming Union Budget, which may provide direction for capex and consumer-facing sectors,” it added.