F&O OUTLOOK: Recovery likely if global markets show strength

The Nifty closed below 4,800 after moving from positive to negative on profit-booking in both cash and futures and options (F&O) segments. Profit-booking was seen in banking, capital goods, FMCG, healthcare, power and metal stocks. However, if global cues remain strong, as they were at opening levels, the market is likely to stage a strong recovery tomorrow.

Nifty February futures closed at a discount to the spot on profit-booking at higher levels. Bloomberg data show profit-booking above 4,810 and short-covering below 4,775. Nifty February futures are expected to face selling above 4,800 as it has been trading at a discount on most days, indicating that bears have not covered their short positions yet.

Metal stocks ended the day on a weak note with Tata Steel seeing build-up of short positions after shares of the world’s largest steel-maker, Arcelor Mittal, fell sharply in Europe due to poor fourth-quarter results. Other metal stocks such as Jindal Steel, JSW Steel, Hindalco and Sterlite Industries fell on profit-booking.

Bank shares fell on fear of a hike in interest rates following inflation pressures in the domestic economy. The February futures of ICICI Bank fell 1.38 per cent and added 665,500 shares in open interest, indicating short build-up. State Bank of India fell over 2 per cent on profit-booking while Axis Bank was down 1.8 per cent due to profit-booking in the F&O segment.

The open interest in 4,800 call options in the last couple of days through a blend of buy and sell contracts suggests consolidation at current levels before a technical pullback. However, a pullback above 4,800 may face strong resistance as open interest in call options at and above 4,900 strikes accounted for 80 per cent of the total open interest in call options. The open interest build-up in 4,600-4,800 strikes puts suggests strong support levels.