Informist, Friday, May 20, 2022
By Vaibhavi
MUMBAI – The Nifty 50 staged a recovery today to end the week full of wild swings on a positive note. However, positioning in the futures and options of the index suggest that the Nifty 50 will not be out of the woods until it decisively surpasses 16400 points.
The Nifty 50 opened sharply higher today tracking recovery across Asian peers and touched a high of 16283.05 points. The index erased its losses from the previous session and closed 2.9% higher at 16266.15 points, ending the week with over 3% gains.
Despite the recovery, call writers remained active at the 16400 strike price as the contract witnessed substantial addition of open interest.
For a sustained upward momentum, the Nifty 50 must decisively surpass 16400 points, otherwise the index will get consolidated within a broader range of 15700-16400 points, said Nandish Shah, technical and derivatives analyst at HDFC Securities.
On the downside, put writers were active at 16000 strike price as the contract held the maximum open interest.
Analysts said an immediate support is seen at 16000 points, a fall below which can see the index retesting March’s low levels of around 15700 points.
The recovery in the market today was driven by covering of short positions that was evident in the over 7% fall in open interest in the Nifty 50’s May futures contract.
The short covering was likely by foreign institutional investors whose long-to-short ratios have improved through the week. Shah said if global cues lend support, he expects the FIIs to further trim their short positions which will help the Nifty 50’s upmove towards 16400 points.
So far, FIIs have remained net sellers throughout May, having sold $3.6 bln worth of shares in the month.
Among specific stocks, the buzz in today’s trade was around pharmaceutical major Dr Reddy’s Laboratories as it shot up over 9% on positive growth outlook following the drugmaker’s robust Jan-Mar sales in the US.
As the stock comfortably surpassed 4,000 rupees in the cash market, call writers unwounded their positions at that strike price and shifted to 4,300-4,600-rupee strike prices as premiums across these contracts skyrocketed.
Maximum open interest addition was witnessed at the 4,300-rupee strike price call option which suggests an immediate resistance kicking in at that level.
If the stock manages to surpass 4,300-rupee levels, it will gain further momentum towards 4,450-4,500-rupee levels, said Osho Krishnan, technical and derivatives analyst at Angel One.
On the downside, the stock is expected to draw support at 4,000-4,200-rupee zone, Krishnan added. The view was supported by options data at the put options of 4,000 and 4,200-rupee strike price witnessed maximum addition of long positions.
The bullish sentiment also saw the stock’s May futures contract surge over 6% indicating addition of long positions. The scrip ended 8.1% higher at 4,249.10 rupees.
Godrej Consumer Products was also in focus as a sharp erosion in its Jan-Mar operating margins triggered bearish bets within its derivatives segment. Following the weak sentiment for the stock, put traders turned active at the 740-rupee strike price as the contract witnessed significant addition of long positions.
A bounce back for the stock is on cards only after it inches closer to its strong support of 740-rupee level, said Miraj Vora, senior manger, IDBI Capital Markets.
In case the stock manages to shrug off the losses and inch higher, it’s upside is seen capped at 800 rupees, as call writers were active at that strike price.
The 13% rise in open interest of the stock’s May futures contract also indicated strong addition of short positions.
Today, the scrip ended 4.4% lower at 760.65 rupees after hitting a low of 753.30 rupees intraday.
–Nifty 50 May ended at 16274.90, up 505.45 points; 8.75-point premium to spot index
–Nifty 50 Jun ended at 16271.50, up 494.65 points; 5.35-point premium to spot index
–Nifty 50 Jul ended at 16299.00, up 491.75 points; 32.85-point premium to spot index
The total turnover in the futures and options segment of the National Stock Exchange was 53.85 trln rupees compared with 174.8 trln rupees on Thursday.
The turnover in index options was 49.70 trln rupees compared with 171.3 trln rupees during the previous session. The total premium turnover of the index and stock options was 378.75 bln rupees compared with 432.00 bln rupees on Thursday.
The most-actively traded underlying stocks were Reliance Industries, HDFC Bank, Adani Enterprises, Infosys, Tata Steel, ITC, ICICI Bank, Tata Motors, Axis Bank and Housing Development Finance Co.
End
Edited by Vandana Hingorani
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