The Indian markets had entered last week on a high note after a strong closing the previous week, only to witness profit-taking.
The Indian markets had entered last week on a high note after a strong closing the previous week, only to witness profit-taking.
The benchmark Nifty fell over 200 points to close at around 4,715. The Nifty April futures added some short positions as the open interest (OI) rose by over 4.3 lakh units and the premium fell substantially.
The market witnessed high volatility during the first 2 days with the Nifty moving in an intraday range of over 5%. The build-up of shorts on Monday resulted in the Nifty falling on Tuesday and touching a low of around 4,625.
But, at these levels, the cost of carry (CoC) in the Nifty futures witnessed a steep rise, with the OI rising by over 5 million shares, indicating strong support for the Nifty. The rise in OI also indicates the confidence of market players to go long at these levels.
Globally, things were steady as the US market showed its strength notwithstanding the data that came in during the week. News like the fresh issues of Lehman Bros and UBS being underwritten the same day has resulted in investor confidence returning to the markets. The Dow was up nearly 400 points on Tuesday.
Backed by buoyant global markets, the Indian markets also opened with a strong gap, but surrendered all the gains on account of profit booking. The 4,950-5,000 levels seem to be a strong barrier for the Nifty to cross. One could say this because the CoC for the Nifty futures starts decreasing near these levels with the OI shedding indicating long unwinding.
The Nifty almost gave flat closings on Wednesday and Thursday with high intraday volatility and finally succumbed to across-the-board selling pressure on Friday after the announcement of the inflation numbers.
The rising inflation resulted in fear amongst investors of a possible rate hike and what followed was selling in the banking stocks, which were strong most of the week, backed by strength in the US financials.
On the stocks front, FMCG continued to impress with huge long positions getting built. IT stocks, which witnessed some profit taking during the initial days of the week, recovered strongly. Among the refining stocks, RPL witnessed strong build-ups on the long side.
The OI for RPL April futures rose over 18% during the week to 46.4 million shares. Index heavyweight ONGC also witnessed strong build-ups and moved to touch the Rs1,060 levels before witnessing profit booking. Capital goods major Bhel witnessed heavy shorts getting built after the quarterly numbers reported were found to be below expectations.
We believe that range trading would continue in the coming weeks before any fundamental trigger results in the range getting broken. The range would ideally be 4,600-4,950. On an intraday basis, Nifty can test the 4,500 levels.
We are positive on the FMCG majors like Hind Unilever and Colgate. We might also see positive movements in RPL, ONGC. Bhel, which witnessed heavy short buildup, can see some short covering taking place.
The author is head, derivatives and strategy, PINC Research
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