Nifty may rally up to 3,740

Short-covering in several index-based stocks took the Bombay Stock Exchange (BSE) Sensitive Index, or Sensex, past 12,000 points today and also boosted gains to more than 50 per cent from the March 9 low. The Nifty also closed above 3,600 and is now expected to rally up to 3,740.

As expected, the rally was led by software giant Infosys Technologies, energy giant Reliance Industries (RIL), private-sector lender ICICI Bank and public sector bank State Bank of India (SBI). ICICI Bank and Infosys gained on short-covering, while RIL and SBI rose on fresh long build-up.

However, the volume on the futures and options (F&O) segment were lower as participants were wary of taking positions due to the gap-up opening of the benchmark indices. The Nifty May futures witnessed a trading volume of 529,191 contracts, mostly for covering of short positions. This futures added an open interest (OI) of 4.44 million intraday, but only 1.61 million shares were carried forward as OI.

Traders covered their short positions in key stock futures as they expected these stocks to move up further. Short-covering of over 500,000 shares each was seen in Steel Authority of India (SAIL), Hindalco, Reliance Communication and Jaiprakash Associates. HDFC Bank, ICICI Bank, Infosys and Larsen Toubro witnessed short-covering of 200,000-400,000 shares each.

Options traders were seen covering their short positions at 3,400-3,500 strike call options on expectations that the Nifty may fall below 3,500 for some time. These traders were seen buying 3,600 and 3,700 strike calls on expectations of a fresh rally that would take the Nifty beyond the 3,700-level.

The immediate resistance for the Nifty is seen at 3,900, where the traders were seen writing call options.