F&O Outlook: Nifty may fall to 4,500-level

The Nifty maintained its support of 4,580 and closed at 4,593, indicating that it could go down to the 4,500-level in the near future. The Nifty September futures closed at a discount to the spot and built an open interest (OI) of 0.6 million shares, hinting at fresh sell-offs by bear operators. The upside for the index is around 4,650 with a major support likely at 4,500.

Trading in call and put options suggests that traders expect the Nifty to have strong resistance between 4,600 and 4,700. The 4,600 and 4,700 calls added an OI of two million shares, mostly through call writing, as traders expected the index to have strong resistance above 4,600. The 4,600 put added 2,68,000 shares, while the 4,500 put lost 774,100 shares in OI, indicating that the index could fall below 4,500.

The weakness in the market is clearly seen in the price behaviour of almost all the most-traded F&O stocks which ended in a Doji pattern. The September futures of DLF, HDIL, ICICI Bank, Reliance Capital, Tata Steel, Tata Motors and Unitech closed in a Doji pattern, indicating either side correction. If the Nifty falls below 4,500, these stock futures can also see a sharp correction.

The September futures of Reliance Communications were at a premium and witnessed short-covering of 2.11 million shares in OI by bear operators. The short-covering was largely due to the proposed public issue by the company’s 90 per cent subsidiary Reliance Infratel. Based on the options trading, the stock could move above Rs 300 from the current level of Rs 291 as traders were seen buying the 300 strike call at a premium of Rs 10 per share.