Continued interest may keep away deep reversals

The stock market is in a bull phase with proprietary traders joining hands with foreign institutional investors (FIIs) to guide the Nifty and Sensex to new highs on Monday. As indicated in this column on Sunday, the Nifty September futures closed above 6,000 and are now expected to move up further to around 6,040 on strong volume-based support from top traders.

The rally becomes more impressive when the 10.7 per cent gain over the August close of 5,402 is taken into consideration. There are no signs of any deep reversal on continued interest from off-shore investors. There are also no profit-booking sales seen from domestic investors, despite RBI’s hawkish stance on liquidity and rates, according to IndusInd Bank Head (Global Markets Group) Moses Harding. So, the FIIs’ excess liquidity is providing the upward momentum and these factors should stay good in the near term. The Nifty September futures saw strong sell-side trades all through the day and, despite this, the futures surged past 6,000 and closed with a premium to spot of 14 points. Another point to note is that data on the basis of time-price opportunities (TPOs) indicates a correction for the Nifty at around 5,887.50 in the near future.

The Nifty futures added an open interest (OI) of 393,650 shares, despite a trading volume of 25.06 million shares, which hints at some profit booking. The market picture chart shows sell-side trades from small traders, which eventually got absorbed by big traders. The intra-day trading in the Nifty futures indicates a narrow-band trade for Tuesday’s session. Call options participants booked profit in the 5,800-5,900-strike calls and covered short positions in the 6,000-strike call. The 6,100 call added an OI of 1.46 million shares, mostly through buy-side trades, which hints at a fresh upside in the Nifty, going ahead.

Some put writing was seen in the 5,900- and 6,000-strike on expectations of the Nifty getting strong support at 5,900 and that could move up to around 6,000 in the near future.

Among stocks futures, RIL, ITC, HDFC, Larsen & Toubro and Reliance Communication moved up on a fresh long build-up. TPO data indicates RIL has the potential to go up to around Rs 1,060, ITC to around Rs 182, RCom around Rs 182 and HDFC to Rs 727.