Derivatives data indicates rally to continue; Bank Nifty to remain bullish

The stock markets could add to the stellar gains made in the past month, going by the pattern on Thursday, expiry day for January series contracts. Traders continue to remain bullish on banking stocks — they replaced 71 per cent of this month’s futures and options (F&O) contracts with those expiring in February. This was higher than the previous three-month average of 67 per cent.

Nifty rollovers and marketwide rollovers were lower compared to recent months as some investors turned cautious ahead of the Union Budget.

“About 78 per cent of market wide positions have got rolled into the next series. Meanwhile, the total futures open interest is at 1.65 trillion, the highest ever. The market has rolled over positions but with some caution ahead of the Budget and the Reserve Bank policy review. The Budget will now set the tone for the markets, which could remain range-bound with a negative bias till then,” said Yogesh Radke, head of quantitative research, Edelweiss Capital.

In the just-concluded January series, the Nifty gained 5.6 per cent, while the Bank Nifty index jumped 7.7 per cent.

“We have seen good amount of rollover and open interest in Bank Nifty contracts. Traders continue to hold on to their long positions. Also, we haven’t seen large amounts of shorting taking place. The data is not hinting towards a correction,” said Sneha Seth, derivative analyst at Angel Broking.

The India VIX index, a gauge for market volatility, rose on Wednesday to its highest in 14 months. The index on Thursday fell three per cent to 17.5. The increase in volatility is due to the coming Budget, where the markets could react widely.

“These are indeed volatile times and we are surely setting some cash aside, as the markets should most likely cool off through a typical post-Budget reaction,” Vaibhav Sanghavi, co-chief executive officer at Avendus Capital Alternate Strategies, told Bloomberg.

In the past year, the VIX index has largely stayed between 10 per cent and 14 per cent. The recent spike in the index comes after a sharp jump in stock prices.

“The VIX index is now inching towards 20 per cent, indicating caution is setting in after the sharp move up we have seen in the Nifty from 10,000 to 11,000,” said Radke.

Analysts said foreign institutional investors (FIIs) continue to hold on to bullish bets. “The long-short ratio for FIIs at 80 per cent is in favour of longs. In the past three months, FIIs have been selling in the cash segment. In recent weeks they have turned aggressive buyers,” said Seth.