Positive consolidation for key indices likely

The futures and options (F&O) data points to consolidation of key indices on a positive note for the week ahead (December 9-13) in the absence of major triggers.

Key indices are almost two per cent lower from the record levels of BSE Sensex at 41,163 points and NSE Nifty at 12,158 points reached on November 28, 2019. As per the previous data, the BSE Sensex closed on positive note in December for seven out of 11 years.

The highest Call OI of 25.35 lakh contracts was seen at 12,100 strike closely followed by 12,000 strike with 24.33 lakh contracts.

Maximum OI addition of 17.99 lakh contracts was recorded at 12,000 strike followed by 12.08 lakh contracts at 12,100 strike. Coming to Put side,11,900 strike has maximum OI of 14.48 lakh contracts followed by 12,000 strike with 11.57 lakh contracts and 11,500 strike with 11.32 lakh contracts.

The derivatives space, during the last two weekly expiries, recorded the highest Call base at 12,100 level and this resulted in the weakness. The Call writers were active at 12,100 strike.

The Nifty is nearing to crucial support zone of 11,800-11,850, where the noticeable Put base is placed. Analysts expect that the indices may enter a more prolong consolidation around the key level of 12,000 points.

"From derivatives front, Put writers at 12,000 current week strike seen unwinding their positions while Call writers added hefty Open Interest at 12,000 strike. Now, the 12,100 Call current week strike holds with the maximum Open Interest of more than 26 lakh shares followed by 12,000 strike.

It clearly indicates that selling pressure on every bounce may remain intact in coming sessions as well. However, as far Bank Nifty is concerned, now 31,600-31,700 (spot) levels should act as crucial hurdle and on downside 31,100-31,000 will act as immediate support," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.

Implied Volatility (IV) has declined due to higher options writing seen of late, which has kept indices in a range. India VIX has declined from 15 per cent to sub 14 per cent.

"The Implied Volatility of Calls closed at 11.79 per cent, while that for Put options closed at 12.10 per cent. The Nifty VIX for the week closed at 14.31 per cent and is expected to remain volatile. PCR OI for the week closed at 1.25," said Bisht.

"Indian markets remained under pressure in the week gone by as traders took profits at higher levels on back of weak growth concerns. Sell off was seen in later part of the week in heavyweights like HDFC twins, SBI, ICICIBANK along with Tata Motors and Maruti.

Nifty indices ended the week well below 11,950 mark, while Bank Nifty also witnessed loss of more than 1.5 per cent (week on week basis)," further added Bisht.

For the week ended December 6, 2019, BSE Sensex closed flat at 40,445.15 points, a net loss of 348.66 points or 0.85 per cent, from the previous close of 40,793.81. Easing 134.55 points or 1.11 per cent, NSE Nifty ended the week at 11,921.50 points as against last week's 12,056.05 points.

Bisht forecasts: "On technical basis, now both the indices have entered into short-term bearish channel, which indicates towards limited upside into prices and we advice traders to focus on stock-specific rather than index in coming week."

Bank Nifty

Registering a net loss of 604.55 points or 1.89 per cent for the week, Bank Nifty closed at 31,341.55 points as against 31,946.10 points on Friday November 29.

The banking stocks slipped into selling pressure as RBI didn't reduce repo rate in the monetary policy meeting held on December 5. However, the outperformance of technology heavy weights compensated the loss in the banking sector.

According to data from ICICI Direct.com, the huge additions were recorded at 32,000 and 32,200 Calls. This situation may keep the index in check.

However, as the Bank Nifty slipped below its sizeable Put base of 31,500, the OI moved lower to 31,000 strike, which can be a potential target on the downside.

The current price ratio of Bank Nifty-Nifty has reverted marginally from the monthly high of 2.64 as weekly underperformance was seen in banking stocks.

Analysts were anticipating profit booking may take place in Bank Nifty, which will push the ratio towards its support levels of 2.58.