While the Nifty closed at an all time high, we have seen the first sign of deterioration in the market breadth
By Nandish Shah
In the August series, Nifty broke out of the last two series trading range (Our bullish view vindicated) to end the series with the gain of 5.44% to close at all-time high. This is the highest series to series gain since the February 2021 series.
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While the Nifty closed at an all time high, we have seen the first sign of deterioration in the market breadth. Out of 162 F&O Stocks, 78 ended in the positive with the average gain of 7% while 84 stocks ended the August series in the red with the average loss of 8%. Bank Nifty continued its underperformance for the third consecutive series where it ended the August series with gains of 2.67%.
In the Nifty we have witnessed a higher rollover of 84% as compared to the last three series average rollover of 82%. We are starting the Sept series with the Nifty future OI of 1.31 crore shares as against 0.95 crore last series. This is the highest OI at the beginning of the series since Feb 2020 (where covid sell-off started). While this 38% rise in the Nifty Future OI with 5.44% rise in the Nifty during the august series Indicates long build-up, possibility of higher volatility should not be ruled out considering the significant higher Open Interest in the Nifty Futures.
On the other hand, in the Bank Nifty, we have witnessed a lower rollover of 79% as compared to 81% in the last series. Bank Nifty Futures OI stands at 15.25 lakh shares as against 20.22 lakh shares last series. This fall of 25% in Open Interest with 2.7% rise during the August series Indicates short covering.
FIIs long to short ratio in the Index futures improved to 1.86 level on expiry day as against 1.78 levels. This ratio of nearly two suggests they are net long (nearly 50000 contracts).
We have seen a lower rollover of 89% in the stock futures segment as against last three series average rollover of 91%. We are starting the Sept series with stock futures Open interest of 423 crore shares as against 437 Cr shares at which we had begun the August series.
Though Nifty closes at all-time high, Stock futures open interest stands 3% lower as compared to last series and 20% lower than all-time high Open Interest of 523 crs which was seen in February 2018. This Lower Open despite markets are at all time high indicates markets are not heavy in terms of positions which augurs well for the markets.
Nifty outlook for September series
Remain bullish and use any correction to accumulate longs
To Sum it up, long rollover in the Nifty Futures, FIIS Index Future long to short ratio above one in the Index futures (They are Net long), Lower stock Futures’ Open Interest (Markets are not heavy in terms of positions) and Put writing at 16300-16500 levels coupled with the stable Put Call ratio indicates that downside is limited in the market and one should continue to remain optimistic for the September series also.
However higher Open Interest in the Nifty Futures (Highest since Feb-2020 where covid sell off started) suggest that possibility of higher volatility should not be ruled out. Therefore, for traders our advice would be to remain bullish and use any correction towards 16300-16500 levels to accumulate long positions with SL of 16100 levels. On the higher side, 16900-17000 levels continue to act as an immediate resistance where we have seen call writing. Amongst the sectors, Oil & Gas, IT, NBFCs and PSU Banks are likely to do well in the Sept series.
(Nandish Shah is Senior Derivative & Technical Analyst, HDFC Securities. Views expressed are the author’s own.)