Nifty short covering rally expected beyond 17600; FMCG, Oil & Gas, Banks look positive

With FIIs heavily short in the Index even after the last month Union Budget and huge selling in cash market, we expect Nifty to be under pressure till 17850 is not breached.

February 28, 2023 13:41 IST

FIIs started this series with around 81% vs 62% index shorts last month.

By Manojh Vayalar

This March series started with a premium of 95 points for the current month. Nifty futures along with FII maintain 83% short positions in line with last month series. The net open interest in Nifty for the new series has increased to around 1.05 Cr vs 98 lakh in the last series. This is because of additional hedge ratio (value of Nifty futures to the market wide open interest value) of around 10.5 for this series.

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The Nifty has been in 17400-17600 range and we believe, once Nifty spot closes above 17600, a short covering rally all the way till 17850 is possible. With the VIX at 13.7% 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 17300-17800 for first fortnight of March expiry.

FIIs started this series with around 81% vs 62% index shorts last month. With more volatility in the Feb expiry, they are up at around 83% as of yesterday. We believe, the major shorting is due to the hedge strategy, because of concerns in the global front. For the Nifty, the IVs for the options fell to 13.7 levels in yesterday’s trade implying selling in options, majorly 17600 Call. For the Bank Nifty 29 March, 42000 strike call option has highest open interest implying strong resistance near these levels. For the Nifty, the VWAP (Volume weighted average price) of Nifty March is around 17850 implying that to be the resistance for these shorts. Above this, Nifty might be positively biased for the rest of the month.

With FIIs heavily short in the Index even after the last month Union Budget and huge selling in cash market, we expect Nifty to be under pressure till 17850 is not breached. The ratio between Bank Nifty and Nifty is currently at 2.30, this ratio has a support at 2.28 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 17850, else we may remain in Sell on Rise with positional support near 17300.