Sunday, January 24, 2010

Weekly Review 22 Jan 2010

Derivatives: Huge volatility expected with downward bias

Overall indications are negative on weak global markets, and we expect volatility with huge downward bias as we enter the expiry week; possible announcements from the government before the budget on the fiscal stimulus withdrawal too can impact marke

The week ended 22nd January 2010 was extremely disappointing for the global market as there were concerns or signals from the Chinese authority that they would start withdrawing the stimulus provided earlier in order to rein in the visible overheating. Thus the market around the world corrected on fears that the Chinese demand would slow as Beijing taps the brakes on its roaring growth to stave off inflation and keep the economy from overheating. China had curbed lending by banks after raising banks reserve requirement ratios by 50 basis points earlier. The Indian market also corrected and some of the disappointments from key corporate earnings exasperated the bearish sentiment. US President Barack Obama's proposed new restrictions on banks, which would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund continued to keep the sentiment bearish. The benchmark S&P CNX Nifty corrected 58.15 points to close at 5036 on Friday 22nd January 2010.

For the full week the nifty corrected 216.20 points and the nifty future closed at discount all throughout the week thus emitting negative undertone. The nifty future discount widened to 16.35 points on Friday. Longs in the January series were seen getting covered; while fresh shorts in February series was seen created. The nifty January series shed 2.80 lakh shares in open interest (OI) to take the total OI to 2.50 crore shares. The February series added 25.77 lakh shares in OI on Friday to take the total OI to 72.75 lakh shares. The volumes increased considerably to wards the end of the week and on Friday the volumes in the F&O segment increased to Rs 1.32 lakh crore. Some of the major stock future counter also witnessed similar trends with rollover of the current series and fresh shorts being created in the February series. The January series stock future shed 11.58 crore shares in OI, while the February series added 11.65 crore shares on Friday. Fresh short being created both at the Nifty and the stock future front is a major negative indicator.

Besides, the trend in the nifty option front was not positive either with calls being written from 4900 to 5200 strikes. The overall trend looks absolutely negative. Now that most of the major companies have already declared their results, the trigger till the budget would be the trend in the global markets.

Volume in the Futures & Options segment of the NSE (Turnover (Rs. Crore.)
DateIndex FuturesStock FuturesIndex OptionsStock OptionsTotal
4-Jan-1074111501918075205442559
5-Jan-10104992235923829291359599
6-Jan-1096362119919377249052702
7-Jan-10100292038220455254653412
8-Jan-1085681950317843256748482
11-Jan-1080321791817631243546016
12-Jan-10138982135930853322569334
13-Jan-10136542171832394311770882
14-Jan-1092201969824641272956287
15-Jan-1075561891219830258148880
18-Jan-10111001923527427246360224
19-Jan-10118251977029293255463442
20-Jan-10116642077430552257565566
21-Jan-102384624795594163060111117
22-Jan-102779028506727743323132392
Source: NSE

Overall the market wide OI on Friday stood at 222.10 crore shares, thus rising by 1.42 crore shares as compared to the previous day. Additions as compared to the previous week was 17.17 crore shares. Major activity was witnessed in the index and stock options segment. (See table OI breakup).

Open Interest (OI) break-up as on 22nd January 2010
Open Interest (OI)*Change**
Market wide222.101.42
Index Future3.560.23
Stock Future168.750.10
Index Options12.660.50
Stock options37.130.59
* No of shares in crore
** Change is vis-à-vis previous day
Source: NSE

The most active options in the January series were the 4900 to 5200 strikes. The call option on the above mentioned strikes witnessed aggressive writing, while the puts at these strikes were wound up. The OI in 5000, 5100 and 5200 call increased by 28.53 lakh shares, 7.83 lakh shares and 6.23 lakh shares respectively while puts of these strikes shed OI. Thus as we enter the expiry week 5000 levels for the nifty would be the key level below which the market looks extremely bearish. (See most active Nifty options table).

Most active Nifty options (January 2010 series)
OI
Call
Nifty 50004048250
Nifty 51004121200
Nifty 52006371250
Nifty 53008561250
Put
Nifty 50005816450
Nifty 51003416100
Nifty 52002548400
Nifty 53001524250
Source: NSE

Top 10 Open Interest (OI) gainers in January series stock futures on 22nd January 2010
Scrip NameOI*Change*% Change
PUNJLLOYD13890000220350019
HCLTECH179920026000017
GAIL256162530937514
SUNTV2320002800014
GRASIM489632306247
ONGC18582751125006
HDFCBANK17786001008006
BHEL1415400549004
IVRCLINFRA2710000740003
BANKINDIA1536150408503
* No of shares
Source: NSE

Top 10 Open Interest (OI) losers in January series stock futures on 22nd January 2010
Scrip NameOI*Change*% Change
PETRONET4862000-2428800-33
ULTRACEMCO444400-201200-31
BHARATFORG2698000-1108000-29
DRREDDY401600-148400-27
IDEA27054000-9984600-27
SINTEX1374800-358400-21
BAJAJ-AUTO232000-58600-20
KOTAKBANK1486650-371800-20
WIPRO2031600-501000-20
MCDOWELL-N772250-180000-19
* No of shares
Source: NSE

5000 at the nifty level could act as a psychological support. Overall the sentiment looks bearish as evident from such shorts being created both at the nifty and the stock futures. In the absence of any major domestic triggers the global markets will remain the key trigger. There could be some announcements from the government before the budget on the fiscal stimulus withdrawal. Thus the overall indications are negative. Expect volatility with huge downward bias as we enter the expiry week.

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