Nifty likely to cross 7800 as traders build long positions

MUMBAI: Dalal Street seems to be getting its rhythm back after losing steam soon after the Union Budget. The build-up of positions in Nifty futures and options contracts suggest that things are getting better despite a few worries about deficient monsoon and geopolitical concerns across the globe.

NSE’s Nifty is expected to cross 7,800 levels, which is about 2% above the benchmark index’s Friday close. The index had touched this level during the pre-budget rally. Last week, Nifty rose 204 points, or 2.73%, to close at 7,663 points. Nifty futures have witnessed build-up of long positions in the past couple of days. Open interest of Nifty futures have also increased by 12.28%, with rise in price by 2.53% over the same period, suggesting creation of bullish bets.

Foreign institutional investors (FIIs) bought index option worth over $493 million during last week. “We expect Nifty's upside level of 7,840 to get tested in the coming weeks. A major option concentration can be seen at 7,800 call strike, where open interest is in excess of 50 lakh shares,” said Amit Gupta, head-derivatives at ICICI Direct.

Put-call ratio (PCR), based on open interest of Nifty, moved up sharply from 0.65 to 0.87 to near July’s high levels. Rising PCR with falling volatility indicates bears are relaxing their grip over the market.
Implied volatility of Nifty (which is calculated from the movement of option prices) moved down from 15.08 to 14.15 levels. “We expect the current trend of outperformance from banking and capital goods space to continue, and heavyweights from these sectors should witness further upsides in the days to come,” Gupta added.

Fresh uptick is likely once Nifty breaks past 7700, said analysts. Traders and investors are looking to build bullish bets on large-cap stocks while cutting their exposure in select mid- and small-caps. “Markets will continue to move up gradually on the back of a pick-up in economic indicators, improvement in corporate earnings and strong fund flows, both from domestic and FIIs,” said Prabodh Agrawal, head of research, IIFL Institutional Equities.