Nifty upside cap likely at 4,500

F&O OUTLOOK

The Nifty broke the crucial support level of 4,430 on Friday and found support at 4,330 (38.2 per cent retracement of the rally from 3,790 to 4,652). The index has to maintain its support at 4,330, failing which it could test the 4,280 level.

The SGX CNX Nifty’s September futures closed at 4,295 on the Singapore Exchange on Friday night, substantially lower compared with the NSE closing of 4,366. It is a clear signal that the Nifty will open on a weak note on Monday.

F&O data indicate that the upside will be capped around the 4,500 level as a lot of call options have been written. Traders have built up huge positions (75 per cent of the total open interest is in call options) in money calls ranging 4500-5000 strikes, indicating that the index has steep resistance if it tries to breach the 4500 level.

Moreover, there has been a significant writing of put options with strikes ranging from 4000 to 4300. The open interest at these strikes accounts for 61 per cent of the total open interest in put options. The 4300 put holds an open interest (OI) of 5.90 million shares while the 4300 call holds an OI of 2.47 million shares. This indicates that the index has a strong support at 4300.

There were mixed global cues on Friday with the Dow Jones, the US benchmark index, rising by 32.73 points while the European shares ended sharply (over two per cent each) lower, marking the biggest weekly decline in more than five years.

Foreign institutional investors (FII) have not turned buyers in the cash market even though the pace of selling has come down in the last couple of months. In the F&O segment, FIIs remain net sellers in index and stocks futures and net buyers in the index option segment.

With FIIs’ shorting the build-up in index and stocks futures, the short-term market will move sideways.

The stocks that witnessed the build up of long positions were Jet Airways, BPCL, Reliance Power, whereas Axis Bank, Tata Steel, Reliance Industries and DLF saw fresh short positions. The covering of long positions was seen in Bharti Airtel, ITC, Reliance Communication and Hindustan Unilever as open interest declined in these stocks futures.