By Gaurav Arora
Nifty August futures is trading with a premium of around 20 points whereas September futures is currently at a premium of 140 points.
After making record highs, the index witnessed some profit taking though intensity was high. But now after a brief consolidation, the index has given a breakout and is set to test 25,000 levels again in the near term. There was a meaningful reduction in OI (open interest) suggesting participants are not interested in creating fresh positions as of now. To put it in numbers, the OI stands at about 5.2 lakh contracts compared to around 6.33 lakh at the start of the series.
Nifty is trading above its all-important EMAs wherein 10 periods EMA support lies at around 24450-24500.
Bank Nifty Performance
Underperformance from banking continues. The ratio (Bank Nifty/Nifty) which was at 2.2 some time back is now hovering around 2.05-2.08 for some time. Going ahead, expect Bank Nifty to trade in tandem with the benchmark.
The range of 49,600-800 would be the strong support for the banking index whereas 50,800-900 would be the resistance. The index needs a close above 50,800-900 for fresh upside momentum.
FIIs Activity
The Foreign Institutional Investors (FII) net index long exposure has fallen to approximately 50%, down from 57% at the beginning of the new series, indicating some negative bias.
Apart from that, they have not been consistent in cash & stock futures positioning.
Support and Resistance Levels
The critical support level for Nifty is at around 24,300-24,400. A decisive close below this range could indicate some profit taking.
The Volatility Index (VIX) for Nifty is currently around 14, with an expected range of 12-18 moving forward.
Data points indicate a relatively stable environment for the near term. This volatility may increase next month keeping track of US election and other geopolitical scenarios.
The Volume Weighted Average Price (VWAP) for Nifty is around 24,450-500, marking this range as a key level to watch. Index has breached and sustained above these levels, so it’s prudent to have a positive view and participants may consider
buying the dips. Any dip towards the VWAP should be considered as a buying opportunity.
For Bank Nifty, the VWAP is around 50,900-51000, only above which one may expect some positive momentum.
Indications are in the favor of Bank Nifty ceasing its underperformance and could start trading in tandem.
Sector Outlook
Sector-wise: All sectors have been contributing on a rotational basis.
Going ahead, we believe Oil & Gas, Tech, and FMCG would be strong performers within Nifty.
Strategy: Call Ratio Strategy
A recommended strategy for Nifty is Call Ratio Strategy. This involves buying Nifty 29th August 24,700 Call European Option (CE) at 210, selling 2X the Nifty 29th Aug 25000 (CE) at 75.
The combined spread of 60 has a target of 140.
Conclusion
The remaining part August series for Nifty futures presents a positive outlook, thanks to the contributions of sectors like Tech & Energy, while Banking may take charge above 50900-51000.
Options Data also suggest the same. The recommended Call Ratio strategy offers a tactical approach to trading in such a scenario. Oil & Gas, Tech, and FMCG sectors emerge as strong contenders within Nifty, offering promising trading opportunities.
(Disclaimer: Gaurav Arora is a Derivatives Analyst at Religare Broking Ltd. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)