Mr. Nandish Shah, Technical Research Analyst, HDFC Securities
Highly volatile June series ended with the gain of 8%. After rising sharply during the first week of the June series, Nifty corrected nearly 8% from the high of 10329 made on 08-June to 9544 on the back of weak global cues. However, Nifty resumed its uptrend again and rallied more than 10% from the low and finally ended the series with the gain of 8%.
Bank Nifty outperformed the Nifty after three series of underperformance, where it surged 12% in the June series. This is the highest series to series gain since March 2019.
In the Stock futures' segment, Open interest in terms of number of shares at the beginning of the July series is at 280 Cr shares as against 292 Cr shares at which we had begun June series. It is 33% lower than the March 2020 series and 45% lower than all-time high Open Interest we have seen in February 2018. These lower leveraged positions despite surge of 40% in the Nifty from the March low Indicates that markets are still light in-terms of positions which augurs well for the markets going forward.
We are starting the July series with the Nifty future OI of 1.14 Cr shares. Though it is slightly higher than the June OI of 1 Cr shares, it is nearly half of the last 10-year average OI of 2 Cr shares.
These lower Open Interest in the Nifty and stock futures at the beginning of the July series indicate traders are still skeptical about the future even after sharp rise in the June series. Lack of confidence creates a wall of worry, which the markets are adapted to climbing. Lower participation amongst market players tells us that the derivative positions are not likely to be a millstone around the neck of the markets for the July series also.
We are starting the July series with the bank Nifty future OI of 13.1 lakh shares as against 14.34 lakh shares last series. These lower Open Interest coupled with the sharp rise in the Bank Nifty during the series Indicates profit booking at higher levels.
We have seen a healthy rollover of 92%in the stock futures segment as against the last three series average rollover of 89%. In the Nifty and Bank Nifty also we have witnessed rollover of 79% and 81% as against last three series average rollover of 70% and 73% respectively.
Outlook for the July series
To Sum it up, Lower stock Futures' Open Interest, despite 40% rise in the Nifty from the March lows, which Indicates markets are still light in-terms of positions, Lower Open Interest in the Nifty Futures' in terms of number of shares (half than last 10 year average), Stable India VIX- fear gauge Index and aggressive Put writing at 9800-10000 levels Indicates that downside is limited in the market and one should remain optimistic for the July series also.
However, considering profit booking by FIIS' at higher levels in the Index futures segment and Call writing at 10500-10700 level Indicates that 10500-10700 level to act as a strong resistance going forward.
Therefore, for traders our advice would be to remain bullish and use any correction towards 9900-10100 levels to accumulate long positions with SL of 9700 levels. On the higher side, any sharp rally towards 10500-10700 levels should be utilized to book profit to buyback at lower levels.