Nifty to make a dash above 16K level in July series, rollover data suggests

NEW DELHI: Future and options (F&O) rollover data for June series suggests the forward march of the market will continue with the benchmark indices likely to hit fresh record highs in the July series.

The domestic market is showcasing resilience amid the global equity volatility over the past two weeks. The index is at levels last seen in February before the pandemic struck, suggesting traders see little need to hedge against downside, said analysts.

“Outlook for a next series remains positive with Nifty likely to make a dash above 16,000 level, its impending resistance mark, while on downside the 15,400 level will be a formidable support zone,” said Navneed Daga, Lead Derivative Analyst, Yes Securities.

Rollovers for Nifty and Bank Nifty stood at 84 per cent, each 700 bps and 400 bps more than the previous month. Positioning remains light as participants waited for directional moves. Stock futures rollovers stand at 94 per cent, which is again higher than average rollovers of the last three series at 91 per cent.

Despite positivity in the data, some analysts expect the upsides to be limited. Abhilash Pagaria of Edelweiss Securities said substantial gains for heavyweights may be harder to come by, given that recent good news is already priced in.

“Also, the 12-month forward PE ratio for the Nifty is now above the 10-year mean and is also one of the highest in major Asian equity markets. The journey onward would require Q1FY22 earnings to be stellar, as states gradually lift the curbs. While ample liquidity should limit any alarming downside, the decline in volatility suggests a measure of complacency has set in,” he added.

Secorally, banking and financials saw long unwinding. There was a sharp dip in OI seen on SBI, HDFC, HDFC Bank in comparison to the previous month. In autos, aggressive price moves along with sharp short covering was seen in the past couple of days. Maruti gained 10 per cent in the last four days with a hint of short covering. In the IT block, TCS added fresh long with breakout above Rs 3,300 mark.

As per expiry day derivative positions, on long side Pagaria prefers tech (Infosys, Tech Mahindra and TCS), insurance (HDFC Life, ICICI Pru Life and SBI Life) and auto two-wheelers (Hero, Bajaj Auto and TVS).

Trading strategy
For the series starting July 1, Daga of Yes Securities suggests traders to use a Short Strangle on Bank Nifty. He advises selling of Calls at strike 36,000 and Puts at strike 34,000 with an inflow of ~175‐180 points. The target should be 40 and 10 points on a spread with stop loss of 329 points on the total combined spread.

“Bank Nifty stuck between the band of 34,000 to 35,300 range in the past 10 days. We expect ongoing consolidation to continue in the short term. Lower volume hints bullish bias with consolidation at top, writing OTM positions is a lucrative trade in the current setup,” Daga said.