F&O Watch: Volatility seen in March series ahead of Budget

Markets are likely to remain volatile in March series with the Union Budget on Monday

The February series witnessed massive decline of nearly 6% with sell-off from foreign funds while volatility is seen in the March series with the Union Budget on Monday. The February derivative contracts expired today.

Nifty future has seen Rollover of around 68% to the March series on provisional basis which is slightly lower to the last series. Stock wise better rollover seen in Wipro, Bharat Forge, HCL Tech, BPCL etc.

 "Nifty February series closed negative on the expiry to expiry basis with the loss of around 6% and given the lowest daily closing in last 21 months below psychological 7000 mark. It has been making lower top – lower bottom formation from last one year and trading in a falling channel with negative bias as it is not ready to surpass any important resistance area," says Chandan Taparia, Derivatives Analyst - Equity Research at Anand Rathi Securities.

In the mid of Feb series the Nifty took support near to the lower band of the channel support of 6868 zones but failed to surpass strong hurdle of 7240-7250 zones and again turned lower from last three trading sessions. It has made a classical example of support becoming resistance and now till 7240-7250 zones is not taken out decisively, immediate trend may remain negative to volatile with intraday swings in broader trading range for next coming sessions.

"Now it has to respect to its recent support of 6868 zones (which is lower band of the falling channel, 200 Weekly Moving average levels) and below that fresh selling may drag the indices towards 6666 and lower zones which is 61.80% retracement levels of entire up swing of 5119 (August 2014) to 9119 (March 2015) levels," he said.

India VIX is up by 27% in this series on closing basis and during the series Volatility has spiked up to 50% at 26.87 levels.

Put Call ratio started the Feb series from 0.89 and gradually fell down towards 0.68 levels which is the lowest levels in last 19 months which indicates that huge Call writing is being witnessed in the market which is keeping the upside limited at every small bounce back.

Foreign institutional investors were net sellers in equities of over Rs 8,000 crore in the cash segment during February.

Bank Nifty has been underperforming the broader indices as it corrected by around 11% compare to Nifty fall of 6% in the Feb series as sharp selloff seen in most of the banks especially in PSU banking counters. Bank Nifty has broken all immediate support and resistances are shifting lower.

OUTLOOK
 
The open interest position in the March series indicates that upside gains are limited.

"In the March series maximum Put OI is at 7000 strike while maximum Call OI is at 7500 strike which is also suggesting support on decline but limited upside. Now March series is longest expiry which is closing at last session of the month on 31st March 2016 and having a major event of Union Budget 2016. Although market may give some volatile spike but premiums are high and volatility may cool down post the event which may cause in decline in option premium. We are having a cautious view on the market but the way it has fallen down much from higher levels and upside is also limited," Taparia added.