Nifty has support at 4,300-4,600

The Nifty closed below 4,600 at 4,580 on Friday on profit-taking. Nifty August futures changed hands at an average of 4,583 while the intraday high was 4,611, indicating a lacklustre trading session. Trading volumes in the derivative segment remained subdued due to range-bound movement. Oil & gas and consumer durable stocks gained while IT, banking, auto, realty and FMCG stocks fell.

Nifty August futures closed at a modest discount to the spot and shed open interest of 856,850 shares. The bid and ask contract changed hands at an average of 4,580-4,595, suggesting no panic buying or selling in the derivative segment. Bloomberg data suggest that small traders (with contract sizes of 1-100) booked profits for covering intraday shorts while the bulk volume (over 500 contracts each) came from buyers.

During the week ended August 14, foreign institutional investors (FIIs) covered their short positions in index futures and formed some long positions in stock futures. The FIIs’ open interest in index futures has declined by 17,000 contracts over the previous week and by 45,000 contracts in the last two trading sessions. This means FIIs have covered their short positions at lower levels and continued their earlier long positions.

The 4,700 level, while holds the highest open interest among call options, may continue as a resistance for the market. However, we saw buying in 4,600 and 4,700 strikes call last week, which indicates that F&O traders are betting on a breakout above 4,700 sometime next week.

An unwinding in the 4,500 call option and build-up in 4,500 and 4,600 put options was observed during the week, indicating short covering by call bears and put writing by bull operators. Nevertheless, 4,300-4,600 puts hold 53 per cent total in put options, which suggests the Nifty has support around these levels.