Markets may oscillate in wide range with bearish tone
Options band of 8,500-12,000 range; Mkts in oversold range; minor bounce likely on short covering
The Nifty futures were trading at discount in the oversold market. On the other hand, volatility is hovering at 67-72 per cent range and index fell 35 per cent within 3-4 weeks.
Derivatives analysts hold the view that the short rollovers are happening at cost due to next month futures trading at par to near month futures. This may lead to closure of some short positions whenever Nifty declines towards 7,800-8,000 levels.
With the noticeable Call bases concentrating at 8,500 and 9,000 strikes, a close above 8,500 may result in a good recovery. Analysts further predict that near expiry this market is not conducive to go short due to this high oversold nature in the battered down Dalal Street.
"We expect that markets may once again witness some wild swings with bears likely to keep control over the markets on any further bounce," observes Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd.
After four weeks of gap, the highest Call OI of 21.66 lakh contracts was recorded 12,000 strike followed by 10,000 strike with 19.42 lakh contracts, 9,000 strike with 14.49 lakh contracts, 10,500 strike with 13.38 lakh contracts and 9,500 strike with 12.23 lakh contracts.
Maximum Call OI buildup of 3.49 lakh contracts was recorded at 11,200 strike, while offloading of OI was mostly at 10,800 strike and 11,000 strike.
Coming to the Put side, highest OI of 20.11 lakh contracts was at 8,500 strike followed by 8,000 strike with 19.19 lakh contracts, 7,500 strike with 16.13 lakh contracts and 7,000 strike with 15.49 lakh contracts. Maximum Put OI buildup of 9.10 lakh contracts at 8,000 strike followed by 7,000 strike with OI of 8.92 lakh contracts.
For the week ended March 20, 2020, BSE Sensex closed at 29,915.96 points, a huge fall of 4,187.52 points or 12.27 per cent, from the previous close of 34,103.48 points.
In the previous week ended March 13, Sensex fell 3,473.14 points or 9.24 per cent. Similarly, NSE Nifty too declined by 1,209.75 points or 13.83 percent, and closed the week at 8,745.45points as against last week's at 9,955.20 points.
Bisht forecasts: "On technical front, both the indices are currently trading in a bearish zone, but also at highly oversold territory.
From current level, one can expect some more recovery towards 8,900 level as short players try to book at lower levels ahead of monthly future and option expiry.
On higher side, however, still 9,100-9,200 levels would act as crucial resistance for Nifty, while 21,000 to 21,500 zone would cap any sharp upside in bank nifty."
Market capitalization (mcap) declined Rs20lakh crore in the four sessions of the previous week and recovered by Rs6 lakh cr on Friday as the Sensex recorded biggest single-session gain since April 4, 2009.
"After a steep fall during the week, Indian markets bounced back sharply in Friday's session and post best one day gain since 2009 along with worst weekly drop since 2008.
However, Nifty once again reclaimed 8,700 levels after dropping towards 3-year low of 7,850 amid escalating fears of economic dislocation due to corona virus.
On weekly basis, Nifty witnessed losses of nearly 12 per cent despite Friday's session recovery and Bank nifty also ended the week with losses of nearly 19 per cent with closing just above 20,300 marks," added Bisht.
According to ICICI Direct.com, India volatility index is at elevated levels. However, it declined from 73 per cent to 67 per cent. Further cool-off may be seen if the spreading Covid-19 start showing sign of calming down.
"The Implied Volatility (IV) of Calls closed at 68.80 per cent, while that for Put options closed at 72.50 per cent. The Nifty VIX for the week closed at 67.10 per cent and is expected to remain volatile with bullish bias.
PCR OI for the week closed at 0.70. In coming week," said Bisht. Since heavyweights of Nifty top-10 witnessed major correction in the last few sessions, we can expect some reversal of the same in the coming days, said the derivatives analysts.
The US is nearing towards lockdown stage. And this is expected to control pace of infections spread. This may lead to pullbacks in the markets whenever it declines towards 8,000-8,200 levels.
Major stimulus are already announced globally which may increase liquidity in emerging markets and in return can make the shorts vulnerable for closure, according to ICICI Direct.com.
With a fall of 4,848.85 points or 19.26 per cent for the week, Bank Nifty closed at 20,317.60 points as against 25,166.45 points. BankNifty fell sharply of late on account of decline in private banking heavyweights.
The higher formation of short positions is keeping the index down. Analysts believe 19,500 would remain an important support area for Bank Nifty and the recent pullback may extend towards 22,000.
The Bank Nifty closed lower for a fourth consecutive week. It fell to its two-year low in a relentless selling pressure in leading private banks like HDFC Bank, Axis Bank, and SBI.
The yields rose on account of continued sell-off by FPIs. This also created some pressure on banking stocks.
In absence of banking remaining lackluster, the participation was coming back from technology and pharma stocks. Rupee depreciation also led to some reversals in these segments.