FIIs heavily shorting Nifty, index to remain under pressure; IT and Auto sectors look positive

With FIIs heavily short even after the Union Budget and huge selling in cash market, we expect Nifty to be under pressure.

Updated: February 14, 2023 16:45 IST

Expect Nifty to be in 17,600-18,100 range for this Feb expiry.

By Manojh Vayalar

This February series started with a premium of 85 points for the current month Nifty futures and later on it dipped towards 20 points. The net open interest in Nifty current month usually peaks around 1.28 Cr since last 3 months. This fell to a low of around 1 Cr in Feb series and with the premium fading, we are likely to see more participation in index futures. The Nifty has been in 17,700-17,900 range for quite some time and we believe, with the VIX as low at 13% and the Bank Nifty being oversold, Nifty has more potential to bounce and break the range on the upside. We expect Nifty to be in 17,600-18,100 for this Feb expiry.

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FIIs started this series with around 62% vs 44% index shorts last month. With some volatility in the Feb series, they are up at around 82% as of yesterday. We believe, the major shorting is due to the hedge strategy post the Union Budget outcome. For the Nifty, the IVs for the options fell to 12.5 levels in yesterday’s trade implying selling in options, majorly 18,000 Call. For the Bank Nifty 23 FEB, 44,000 strike Call option has highest Open Interest implying strong resistance near these levels. The Nifty, the VWAP(Volume weighted average price) of Nifty Feb is around 18,050 implying that to be the resistance for these shorts. Above this, the short covering can take Nifty to 18400 levels.

With FIIs heavily short in the Index even after the Union Budget and huge selling in cash market, we expect Nifty to be under pressure till 18,050 is not breached. The ratio between Bank Nifty and Nifty is currently at 2.31, this ratio has a support at 2.30 and resistance near 2.35. We do not expect underperformance by the Bank Nifty in the short term. We expect Nifty to witness a short covering rally only beyond 18,050, else we may remain in Sell on Rise with positional support near 17,600.