Breakout seen ahead

The Nifty fell 1.74 per cent, led by Reliance Industries and banking & financial stocks. With both the Nifty futures trading at 22-24-point discount to spot and foreign institutional investors being net sellers in the index futures, the markets are expected to remain weak.

The Nifty took support at 2,760 and was seen consolidating in the range of 2,760-2,800. Ashish Shroff, technical analyst at Ambit Capital, expects the index to bounce back from the current levels to 2,950, with the reversal point for the uptrend at 2,700.

If the Nifty breaches 2,700, one can expect a sharp fall thereafter. The markets have been rangebound between 2,700 and 2,850 for the last seven days and a breakout is expected. The trading volume indicates unwinding of intra-day long as well as short positions in the January futures and fresh short build-up of 2.14 million shares in the February futures.

The options traders are seen buying the 2,700 strike call and building huge shorts at 2,800-3,200 strike calls. This suggests that the traders believe the Nifty has very little scope to move above the 2,800 level in the short term.

In fact, of the total call options OI of 26.49 million shares, the OI at 2,800-3,200 strike calls accounts for 78 per cent. This indicates that the index is facing heavy resistance between the 2,800 and 3,200 levels.

The stocks of power companies were in great demand with NTPC adding OI of 3.67 million shares (the scrip gained 4.3 per cent) and Reliance Infrastructure added OI of 88,734 shares (up 3.16 per cent) as the power regulator plans to increase the rate of return on equity for power projects to 15.5 per cent from 14 per cent. For projects completed on schedule, the rate of return on equity will be 16 per cent.