Long build-up in banking stocks

F&O OUTLOOK

The Sensex registered 500-plus single day gains for the first time since July 23 this year, led by banks and realty stocks. The BSE Bankex rose by 6.3 per cent and the BSE realty index went up by 5.1 per cent as a decline in inflation calmed interest rate fears.

The Bank Nifty was up 6.4 per cent, accompanied by an 86 per cent increase in the open interest, largely due to a build-up in long positions. The banking stocks, which had seen a sell-off on Thursday, rebounded on easing fears of further monetary tightening.

There was a long build-up in frontline banking stocks such as State Bank of India, HDFC Bank, Punjab National Bank and ICICI Bank. Among the mid-rung banks, Axis Bank, Kotak Bank and Union Bank saw a sharp increase in open interest. We may see a further rise in these stocks as the open interest has gone up by over 50 per cent.

The S&P CNX Nifty ended above last week's resistance level of 4330. The relative strength index (RSI) on the intraday charts has moved from the oversold to neutral zone. So, with any further upside, the moving averages should give a buy signal.

A technical analyst with Ambit Capital expects the Nifty to take support at the 10-DMA of 4330 and continue its upmove thereafter. The index is likely to target 4600 in the short term, with a stop-loss of 4200.

The covering of short positions in the September contract series is another bullish factor. The Nifty September futures added open interest of 12.14 million shares in intra-day trading. But only 427,600 shares were carried forward after the trade-off session as the bear operators chose to cover their short positions.