Nifty short covering rally possible above 17500, Bank Nifty support placed at 39000-39200

By Manojh Vayalar

This March series Nifty Futures started with a premium of 95 – 100 points for the current month. Nifty Futures along with FII maintain 83% short positions in line with last month’s series. Later the index witnessed a short covering bounce almost till 17750 levels and then again it sold off to make new lows towards 17200 levels. So we believe every bounce on the Index has been utilized to sell and hence the Sell on the rise still exists as a trade sentiment now in the Index. Eventually, the Nifty 17400 – 17700 was the range and we believe now the Nifty is in the 16900 – 17400 range. Once the Nifty spot closes below 16900 the selling might intensify. The VIX for the Nifty also rose to almost 16% from 12% implying more nervousness.

The Bank Nifty has been witnessing the same selling pressure as well, off lately and we expect 39000-39200 to be the support now. A short covering rally is possible only above a close of 17500. FIIs started this series with around 81% vs 62% index shorts last month. With more volatility in the March first fortnight, they are up at around 84% as of 10 March. For the Nifty, the IVs for the options rose to 16 levels in yesterday’s trade implying buying in put options, majorly 17200. For the Bank Nifty 16 March, the 40500 strike call option has the highest open interest implying strong resistance near these levels. 

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For the Nifty, the VWAP (Volume weighted average price) of Nifty March Futures is around 17500 implying resistance. Above this, Nifty might be positively biased for the short term. With FIIs heavily short in the Index even after the Union Budget last month and huge selling in the cash market, we expect Nifty to be under pressure till 17500 is not breached.

The ratio between Bank Nifty and Nifty is currently at 2.30, this ratio has support at 2.26 and resistance near 2.35. We do not expect outperformance by Bank Nifty in the short term. We expect Nifty to witness a short covering rally only beyond 17500, else we may remain in Sell on Rise with positional support near 16900. Sector-wise, FMCG and selective Oil & Gas look positive.

NTPC has seen huge long additional buildup month on month. We believe the stock might rally till 188 in the short term with support near 175 levels. HDFC Bank might witness some short covering and bounce above 1600 levels and support is around 1540 for the scrip. Tata Motors with a base at around 417 levels can rally till 440 in this series. 

(Manojh Vayalar is VP- Derivatives at Religare Broking Ltd. Views expressed are author’s own.)