Nifty to reclaim 18600? Bank Nifty remains in buy on dips; Metals, Pharma look positive, Infra under pressure

By Manojh Vayalar

This January series started on a flat tone for both the Nifty and Bank Nifty. The positioning in the Nifty futures was at 1.05 crore vs 1.11 crore Open interest last month. Lower Open interest is implying a lack of clear trends in the index. Generally, a lower positioning brings in a range-bound movement. We expect Nifty to be in the 18000 – 18500 range for the first fortnight of the contract. FIIs started this series with around 56 % vs 77% Index longs last month, with some volatility in the Jan series they are down at 47% longs as of yesterday.

For the Bank Nifty, the IVs for the options fell from 16.8 to around 16 levels in yesterday’s trade, implying selling in options in Bank Nifty, we believe are major put options. So Bank Nifty remains in Buy on Dips with strong Support at 42800 and resistance near 44000. The Nifty VWAP (Volume weighted average price) of Nifty January is around 18150 implying that to be the support for these longs. The ratio between Bank Nifty and Nifty is currently at 2.38, this ratio has support at 2.26 and resistance near 2.42. We do not expect outperformance by Bank Nifty in this series. We expect Nifty might rally beyond 18600 only if the participation exceeds 1.2Cr in Open interest which does not seem the case now and the VIX remains in the 13-15% range.

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Sector-wise Metals, Pharma and Oil & GAS look positive however Infrastructure might witness pressure. RECL has seen a huge long buildup in the last 2months with participation going up from 4.8Cr to 7.1 Cr Open interest, presently with an 8% rise in price. We believe the stock can rally to 135 – 138 on this series with support near 114. Tata Steel has witnessed huge derivative-based buying and huge addition of around 14% Open interest, we expect the stock to rally to 126, and the support is around 114 in this series. Tata Motors with a base at around 385 levels can rally to 420 in this series. 

(Mr Manojh Vayalar is VP – Derivatives Research at Religare Broking Ltd. Views expressed are the author’s own. Please consult your financial advisor before investing.)