Nifty may trade below 2,900

F&O OUTLOOK

The market witnessed an across-the-board selling in metal, realty and banking stocks. Index heavyweights like Reliance Industries (RIL), ICICI Bank, State Bank of India (SBI) and Larsen & Toubro (L&T) declined between 5 and 8 per cent on delivery-based selling by foreign investors. Except for ITC and Hindustan Unilever, all the stocks in the Sensex basket declined.

The Nifty October futures witnessed unwinding of open interest (OI) of 3.92 million shares, November futures added an OI of 3.11 million shares, while the cost-of-carry in November futures declined from Rs 23 to Rs 15 a share. This indicates that F&O players have squared off their long positions and have created fresh short positions.

The most-traded F&O stocks such as RIL, Reliance Petroleum, Bhel, DLF and ICICI Bank witnessed unwinding of an OI in the October futures contracts, but only half of such positions got rolled over to the November futures. As these stocks have seen a sharp correction on Wednesday, it indicates that F&O players seem to have squared off their long positions.

However, other key stock futures like Bharti Airtel, Cairn India, Grasim, HDFC, HDFC Bank, L&T and SBI, which fell by around 4-8 per cent, witnessed an unwinding of October futures OI getting rolled over to the November series, indicating that players have carried forward their short positions.

The options data for the day suggest that the Nifty has strong resistance above 3,200, while the support level of 3,100 has become vulnerable. Options traders expect the Nifty to trade below the 2,900 level as they were buying the 3,000 and 2,900 strike puts. A few others have been covering their short positions at 3,100 and 3,200 strike puts on expectation that the index is unlikely to trade above the 3,100 and 3,200 levels in the near term.