PCR at 1.15 indicates neutral market

With uncertainty over economy revival and geo-political tensions looming over the domestic bourses, the key indices may hover in a narrow range for the week ahead (June 1-5, 2020) as the futures and options (F&O) data also validating the shrinking options band, which is projected in the range of 9,500-9,200 levels.

However, this is subject to any unforeseen development on nation's borders with China and Pakistan. The overall Put-Call ratio (PCR) is at 1.15 and it's indicating neutral market, observe derivatives analysts.

"Indian markets began June series on subdued note after running sharply higher in May series. Nifty index reclaimed 9,500 level on back of sharp short covering.

However, from derivatives front, Put writers are now actively adding Open Interest at 9,200 strike, which should act as strong support for the markets moving forward.

On higher side, 9,700 level will remain crucial resistance for the markets," said Dhirender Singh Bisht, senior research analyst (derivatives), SMC Global Securities Ltd.

Nifty and Bank Nifty declined 7.5 per cent and 17.25 per cent respectively in May derivatives series, which concluded on May 28.

The Rollover for Nifty to June F&O series was 42 per cent as against 55 per cent in the previous month rollover.

The rollover for Bank Nifty was 23 per cent to June series as against 64 per cent to May series. The marginal rollover is indicating the lack of interest among traders in taking large positions.

"On rollover front, highest rollover seen in PowerGrid, Grasim, Petronet, NMDC and PEL, whereas on lower side are BEL, Cipla, Idea, HindPetro and UPL.

The basis gap in almost all future stocks are negative and this indicates limited upside in stocks though index is trading little far from resistance," further added Bisht.

According to ICICI Direct.com, Nifty may trade between 9,200 and 9,750 amid high volatility. On the weekly option front, 9,000 Put and 9,500 Call hold maximum OI. Once the Nifty manages to sustain above 9,500, more upside can be seen in the short-term, said the analysts.

The 9,500 strike, which clocked second highest Call OI buildup of 5.24 lakh contracts, recorded maximum Call OI of 15.21 lakh contracts followed by 9,700 strike, which received highest OI addition of 6.11 lakh contracts, with 13.19 lakh contracts, 10,000 strike with 11.12 lakh contracts and 9,600 strike with 11.01 lakh contracts.

The 10,000 strike had highest Call OI concentration in previous week ended May 22 and continued to hold significant OI buildup of 5.10 lakh contracts.

Coming to Put side, the 9,200 strike, which received highest Put OI addition of 11.05 lakh contracts, recorded highest Put OI of 20.06 lakh contracts followed by 9,000 strike with 18.91 lakh contracts, 9,400 strike with 15.26 lakh contracts and 9,300 strike with 11.90 lakh contracts.

The 9,000 /9,400/8,500 strikes witnessed significant Put OI buildup. The 9,500 and 9,200 strikes may act as key resistance and support levels based on the options data, while options pain is at 9,400 strike.

For the week ended May 29, 2020, BSE Sensex closed at 32,424.10, a net gain of 1,751.51 points or 5.71 per cent, from the previous close of 30,672.59 points.

Similarly, NSE Nifty too rose by 541.05 points or 5.98 percent, and closed the week at 9,580.30 points as against last week's at 9,039.25 points.

Bisht forecasts: "From technical front, Nifty has managed to move above short-term moving averages and managed to give a breakout above the key resistance level of 9,400." The overall Put-Call ratio (PCR) is at 1.15 and it's indicating neutral market.

The PCR for 9,500 strike is 0.35 and 10 for 9,200 strike. After drop in volatility in the previous three weeks, India VIX marginally rose 0.67 per cent to 30.22. Nifty futures closed the week at a discount of 62 points with a fall in IV by four per cent.

"The Implied Volatility of Calls closed at 26.38 per cent, while that for Put options closed at 29.63 per cent. The Nifty VIX for the week closed at 30.02 per cent and is expected to remain volatile.

PCR OI for the week closed at 1.48 flat as compared to last week. In coming week, we expect markets to remain in bullish mode and any dip into the prices should be use to create fresh longs."

FPIs bought Rs2,354 crore, while DIIs bought Rs145 cr in the cash segment. FPIs sold index futures worth Rs354 cr, bought Rs2,421cr in index options and bought Rs2,123cr in the stock futures segment.

Bank Nifty

The NSE banking index recorded a reasonable upward journey thanks to the short covering. Recovering by 2,018.35 points or 11.68 per cent for the week, Bank Nifty closed at 19,297.25 points as against 17,278.90 points. The derivatives analysts hold 18,000-20,700 range for Bank Nifty.

"Bank Nifty outperformed the up move as strong momentum was seen from lower levels in some of the heavyweights like HDFC twins, Axis Bank and ICICI Bank during the week," said Bisht.

The 20,000 strike has highest Call OI and 18,000 strike has highest Put OI. The overall PCR for Bank Nifty is 5.16 and this is indicating overbought zone for the banking index.

Private banks led the recovery as HDFC Bank, IndusInd Bank and Federal Bank in focus, whereas PSU banks underperformed.

From the options space, due to high volatility, option writers were not active at any strike. However, analysts feel it may largely consolidate near 19,000 with a positive bias.