Options indicate strong support for Nifty at 5200

The market gathered momentum on Thursday after correcting for the initial part of the week. The volumes improved in spite of lacklustre trading, indicating underlying strength. The Nifty futures closed above 5300 for the first time in the last 18 months. The year-end pressure also got absorbed, which is another good indication for the times to come.

The cost of carry remained in the positive zone, at around 10-15 basis points, except on March 31 owing to a long bias. The open interest (OI) too improved by almost a million units as frontline stocks like ONGC, Bhel, SBI and Reliance Industries moved up with volumes.

The options too indicated strong support at 5200 as huge writing at implied volatilities of 20 indicate willingness of traders to go long at 5100-5150 levels. The put-call ratio of over 2 for 5100, too, corroborates strong support in case of a downmove.

Global strength of equities and commodities in spite of rising Treasury yields indicates increasing risk appetite. The Dow Jones, Nikkei and other Asian indices have reached new highs, which has helped increase confidence. The economic data coming out of the US and Japan led to strengthening belief that recovery is gaining momentum.

Domestically, the OI trends indicate that the high-beta sectors such as infrastructure, construction, reality and media are witnessing a rise in long positions. Reliance Infra is witnessing fresh long interest with OI running near 12-months highs with rise in deliveries at the last two expirys. This suggests strong accumulation around Rs 975-1000 levels. I believe, if this pattern continues in the next couple of months, the stock can move up sharply by 30-40%.

GVK Power and HCC may also inch up by 10-15% in 2 months. DLF is showing strength and could move up to Rs 330-340 levels.

In telecom, Bharti is showing strong-accumulation pattern around Rs 290-300 levels and has risen to Rs 310 due to fresh longs. This move may gain strength and the stock can go to Rs 330-340 levels. Reliance Communications may continue to see accumulation near Rs 170 levels.

In metals, Hindalco and Tata Steel may continue to attract fresh longs while SAIL and Sterlite may show consolidation.

Pharma and FMCG may witness some profit-booking as traders shift from defensives to high beta stocks. IT large-caps may bottom out and show consolidation. Polaris, Rolta may attract long build ups as some longs from large-caps shift to mid-caps.

Among mid-caps, stocks that are showing signs of strength are Suzlon, Triveni Enginnering, Nagarjuna Construction, Hotel Leela, Nagarjuna Fertilizers, Yes Bank, Essar Oil, BEL and RNRL.

Among the frontliners, SBI, Reliance Capital, Bhel, L&T, RPower may move up with fresh longs. Power stocks like NTPC, Power Grid may also attract fresh longs.

The Nifty, after a long consolidation, moved above 5300 due to fresh longs and rising confidence on underlying strength. I expect this strength to gain momentum and if results are not too out-of-tune, the market may inch past 5500 by April expiry. Over a medium term, Nifty is headed towards 6000.

The writer is director - institutional equities and chief strategist, Fiduciary Euromax Capital Markets Ltd