F&O data hints at volatility with minor fall

The NSE Nifty remained volatile for the week ended April 3, 2020, once again, but closed above 8,000 level, which is the highest Put base for the week ahead. On higher side, fresh writing was seen at the 8,500 Call strike indicating immediate hurdle for the index, observe derivatives analysts.

Highest Call OI of 15 lakh contracts was at 9,000 strike, which has highest Call OI buildup of 6.29 lakh contracts, followed by 8,500 strike with 13.01 lakh contracts and 9,500 strike with 7.14 lakh contracts. Further, significant Call OI buildup of 6.02 lakh contracts and 4.74 lakh contracts was seen at 8,400 and 8,500 strikes respectively. Coming to Put side, highest OI of 15.19 lakh contracts was recorded at 8,000 strike followed by 7,800 strike, which has highest OI buildup of 7.74 lakh contracts, with 10.16 lakh contracts and 7,500 strike with 10.18 lakh contracts. The 8,000 strike recorded significant Put OI buildup of 5.76 lakh contracts.

"From derivatives front as well Call writers remain active during the week and create fresh short positions in index. We expect markets to remain highly volatile in coming week as well and likely to trade with bearish bias as traders will keep a watch on any developments regarding updates on coronavirus spread," Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said.

According to the data on ICICI Direct.com, the Nifty lost most of the ground covered in the penultimate week and closed above 8,000 losing almost six per cent. Once again, the BFSI space turned out to be a major laggard and witnessed a decline of more than 10 per cent where both PSU and private sector banks came under pressure. The recent recovery was seen in anticipation of measures from the Union Finance Ministry and RBI. It almost fizzled out as outflows continued from equities. Bisht adds that "once again bears took the charge and kept Indian markets under pressure during the week with Nifty losing more than six per cent, while Bank Nifty nearly 13 per cent week on week basis on back of fresh short buildup." For the week ended April 3, 2020, BSE Sensex closed at 27,590.95 points, a fall of 2,224.64 points or 7.46 per cent, from the previous close of 29,815.59 points. Similarly, NSE Nifty too declined by 576.45 points or 6.65 percent, and closed the week at 8,083.80 points as against last week's at 8,660.25 points.

"From technical front, the 8,000 level would act as psychological support for Nifty below which further selloff can be seen till 7,850 level. However, on higher side 8150-8300 zone would be immediate resistance for Nifty," forecasts Bisht.

The volatility index has declined significantly in the last two weeks. It fell from 86 per cent to 56 per cent. Despite the market remaining under pressure, the decline in India VIX suggests some consolidation is expected around 8,000 level. The Implied Volatility of Calls closed at 53.02 per cent, while that for Put options closed at 59.41 per cent. The Nifty VIX for the week closed at 60.05 per cent and is expected to remain volatile with bullish bias. PCR OI for the week closed at 1.26. In the futures segment, no major OI addition is visible in the first week of the series while Nifty Open Interest remains low near 10 million shares, which is a decade low suggesting low leverage.

Bank Nifty

Declining by 2,719.7 points or 13.61 per cent for the week, Bank Nifty closed at 17,249.30 points as against 19,969 points. The Bank Nifty declined for a sixth consecutive week. "Banking stocks majorly hammered down badly in the week gone by as investor sentiments continued to weigh amid uncertainty over Covid-19 pandemic and its economic impact," said Bisht.

Derivatives analysts observe that since the noticeable Put base is at the 16,000 strike, it should provide support to the index on any major decline again. The weakness prevailing in private banking stocks is keeping the pressure on Bank Nifty. The major Call base is at 19,000 strike, which would act as an immediate resistance. Broadly, the Bank Nifty may remain within this broad range. ICICI Direct.com holds that the decline in volatility recently may also lead to some range bond action in the index. Hence, one can sell OTM Call and Put options to capture the time decay in the shortened week. PSU banks have already been under pressure and are quite oversold. Any stability in the banking index above 16,000 may bring some life into these stocks.

The ratio of Bank Nifty-Nifty came under pressure once again and declined to lowest levels since 2016. During the week, it has moved from 2.32 to 2.13 levels. The next support for the price ratio is placed round 2.05.