Sunday, August 23, 2009

NSE Outlook - Volatility before expiry of Aug Series

Derivatives: Nifty may remain firm as further short covering may increase the index

While global market trend, FII activity and the monsoon will continue to influence, we believe that he market may maintain its strength and trade above 4600 level during the next week

Amid excessive volatility the benchmark NSE Nifty closed 73.74 points higher at 4526.90. For the full week however the Nifty closed 73.45 points lower at 4526.90 points during the week ended 21st August 2009 as compare to the previous week amid excess volatility both in the domestic as well as the global market. Worrying China valuation concern and domestically the deficit monsoon continued to exert downward pressure on the domestic market although towards the end of the week the signs of marginal revival in monsoon pulled back the otherwise tanking index.

The monsoon deficit improved to 27% for the period 1st June to 18th August as compared to 29% deficit estimated earlier. India still faces a drought as weak June-September monsoon rains have hit planting of several crops such as rice, sugarcane and oilseeds and raised food prices. On 21st August 2009 the market remained volatile all throughout the day with downward bias till afternoon after which gains in Chinese stocks and healthier opening of the European market improved sentiments. A rebound in US index futures also aided the recovery on the domestic bourses.

The domestic futures & options (F&O) market witnessed significant improvement in volumes, as there was significant increase in trading activity in many of the future counters all throughout the week. As evident from the trading details on the last day of the underlying week the overall F&O market added 2.29 crore shares in open interest (OI). Rather almost all of the additions were contributed by the stock futures segment. (See table OI breakup).

There was aggressive short covering in the Nifty near month, which shed 21.43 lakhshares in OI on this day. The total OI of Nifty August stood at 1.94 crore shares. Thus for the full week the Nifty shed 25.08 lakh shares in OI. During the week however most of the major near month stock futures also shed OI. For e.g. Reliance shed 2.30 lakh shares in OI, whereas Tata Steel and Tata Motors shed 58.12 lakh shares and 22.12 lakh shares in OI during the week under review.

However ICICI near month added 3.77 lakh shares in OI during the week. Thus short covering in some of the major counters will continue as the market approaches expiry.

Open Interest (OI) break-up as on 21st August 2009
Open Interest (OI)*Change**
Market wide157.642.29
Index Future2.930.08
Stock Future116.282.29
Index Options9.83-0.05
Stock options28.6-0.03
* No of shares in crores
** Change is vis-à-vis previous day
Source: NSE

In the Nifty near month options the 4400 to 4700 strikes remained the most active. The 4500 strike call shed a significant 18.41 lakh shares in OI and the total OI at this strike stood at 29.75 lakh shares, which is a major bullish indicator as this is unwinding of calls wrote at this level. The 4700 and 4800 strike calls also shed 3.91 lakh shares and 1.86 lakh shares respectively in OI.

On the put front there was significant winding-up of OI in 4300 strike, however 4400, 4500 and 4600 strikes witnessed aggressive addition of OI. This indicates fresh put writing at these strikes. Thus the option signals the underlying above 4600. (See most active Nifty options table).

Most active Nifty options (August series)
OI
Call
Nifty 45002975050
Nifty 46004285950
Nifty 47004013000
Nifty 48002765800
Put
Nifty 44004717550
Nifty 45003977450
Nifty 46001828250
Nifty 4700772200
Source: NSE

Volume in the Futures & Options segment of the NSE (Turnover (Rs. Crore.) (August contract)
DateIndex FuturesStock FuturesIndex OptionsStock OptionsTotal
31-Jul-09151941928821272139857151
3-Aug-09122231778219457134250805
4-Aug-09165142099921846150160860
5-Aug-09179031821226134148163729
6-Aug-09211722119529475197873819
7-Aug-09175811697428846183065231
10-Aug-09186561649931773156668493
11-Aug-09180061587828200143563519
12-Aug-09188691810634758161473347
13-Aug-09151821893829578185465552
14-Aug-09154221777628859183563892
17-Aug-09165791626236218192570983
18-Aug-09187581817735111161073656
19-Aug-09218301863640483194882897
20-Aug-09147421514030688131361883
21-Aug-09196521746541630167680422
Source: NSE

The index put call ratio fell to 0.96 on 21st August 2009 as compared to 0.97 during the previous day, whereas the stock put call ratio increased to 0.40 as compared to 0.31 during the previous day. Thus the market wide put call ratio was 0.94 on 21st August 2009.

Top 10 Open Interest (OI) gainers in August series stock futures as on 21st August 2009
Scrip NameOI*Change*% Change
TATATEA246950123200100
YESBANK190740064460051
SINTEX53620012040029
GESHIP95400019200025
HINDUNILVR6585000122700023
DENABANK484575071925017
ABAN214480030440017
BANKINDIA178125023845015
IVRCLINFRA257200033700015
TECHM100620012480014
* No of shares
Source: NSE

Top 10 Open Interest (OI) losers in August series stock futures as on 21st August 2009
Scrip NameOI*Change*% Change
GTL906000-403500-31
CANBK594400-252000-30
UNIONBANK1625400-490350-23
HEROHONDA1176800-339200-22
INDHOTEL3099168-619074-17
ABB872500-174000-17
EDUCOMP532650-103350-16
GAIL2057625-387000-16
AUROPHARMA268800-50400-16
RPOWER11484000-2092000-15
* No of shares
Source: NSE

Although the Nifty option indicators are positive there are domestic monsoon concerns as well as the global market concern, which may act as the dampeners. However as the market approaches the expiry week there could be some upward spike driven primarily by short covering in major counters. The global market trend and the FII activity and the monsoon will continue to influence the domestic trend. The market may maintain its strength and thus trade above 4600 levels during the next week.