Sell on rise has been sentiment, Bank Nifty witnessing selling pressure; IT, FMCG, Banks look positive

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 series. Later the index witnessed a short covering bounce almost till 17,750 levels and then again it sold off to make new lows towards 16,800 levels. So, we believe, every bounce on the index has been utilized to sell and hence the sell on rise was the trade sentiment now in the index.

Eventually for the Nifty, 16,800-17,300 was the range and we believe, the Nifty is in now in an even tighter range of around 16,900-17,100. Once Nifty spot closes below 16,800, the selling might intensify. The VIX for the Nifty has been more or less at around 16% wrt 13% last fortnight implying limited nervousness.

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The Bank Nifty has been witnessing some selling pressure as well off lately and we expect 38,800-39,000 to be the support now. A short covering rally is possible only above a close of 40,500. 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 83% as of 28th March. For the Nifty, the IVs for the options stayed at around 15 levels in yesterday’s trade implying possible buying in put options, majorly 17,000.

For the Bank Nifty 29th March, 39,500 strike call option has highest open interest implying strong resistance near these levels. 39,500 strike has seen short straddle (straddle is when the same strike call and put options are involved) activity at 450 premium, so we believe, 39,000-40,000 to be the range till expiry. For the Nifty, the VWAP (Volume weighted average price) of Nifty March Futures is around 17,200 implying that to be the resistance. Above this, Nifty might be positively biased for the short term.

With FIIs heavily short in the index even in this month and huge selling in cash market, we expect Nifty to be under pressure till 17,200 is not breached.

The ratio between Bank Nifty and Nifty is currently at 2.31, this ratio has a support at 2.26 and resistance near 2.35. We do not expect outperformance by the Bank Nifty in the short term till 40200 is not breached. We expect Nifty to witness a short covering rally only beyond 17200; else we may remain in Sell on Rise with positional support near 16800.

Sector-wise, IT, FMCG and select Banks look positive. Infosys with a base at around 1370 levels can rally till 1450 in the April series. Kotak Bank might witness some short covering and bounce above 1740 levels and support is around 1640 for the scrip.

(Manojh Vayalar, VP- Derivatives, Religare Broking. Views expressed are author’s own. Please consult your financial advisor before investing.)