FIIs turn bullish on Nifty; F&O activity hints at gains ahead

Cues from F&O market for December 10: Foreign investors are seen building long positions in Nifty futures thus far this month, with open interest rising by 27% in the last six days.

Derivatives Market Insights for Tuesday: Foreign institutional investors (FIIs) seem to be slowly but steadily building bullish (long) positions in Nifty futures thus far in the month of December, while the NSE benchmark index has gained 2 per cent.  According to data from the NSE, FIIs total open interest (OI) in Nifty futures in the six trading days so far this month has risen by 27.1 per cent. In case of the overall index futures, data shows that FIIs have added 45 per cent new positions on the long side of trade in index futures, while reduced short (bearish) bets by 11.8 per cent in this period.  A closer look at the Futures & Options (F&O) data reveals that the FIIs have net bought 77,262 contracts of index futures thus far in December - of which they net purchased 23,566 contracts of Nifty futures and 52,653 contracts of Bank Nifty futures.  Data also shows that FIIs OI in Bank Nifty futures has declined by 19.5 per cent so far this month. This is likely on account of closure of short bets in Bank Nifty, as data showed consistent net buying in these contracts, while the Bank Nifty climbed 2.6 per cent in this period.  What lies ahead?  The NSE F&O data shows, that FIIs long-short ratio in index futures stands at 0.81; i.e. foreign investors still hold more of short positions in index futures as against long trades.  On the other hand, retail investors and proprietary traders' long-short ratio stands at 1.5 and 0.4 - implying a contrast outlook on the market future direction. Retails investors are fairly optimistic holding up to 5 long bets for every 3 bearish bets; whereas, proprietary traders were holding more than 2 short positions for every bullish bet as of December 09 (Monday).  As per the options data for the monthly expiry, the Nifty PCR (Put Call Ratio) stands at  1.20 - implying higher open positions in Puts versus Calls. The highest OI in Calls stands at 26,000 and 25,000 Strike Prices followed by 24,500.  On the other hand, highest OI in Puts stands at 24,000 Strike followed by 24,500 and 23,500. The significant OI at the 24,500 Strike, both in Call and Put, indicates a likely trading range of 24,300 - 24,900 for the Nifty 50 index.  For now, the Nifty upside may be capped around 24,750 levels, as the weekly (Thursday) expiry PCR reads 0.7 - implying higher Call writing as against Put. Support for the Nifty on the downside is expected around 24,450 - 24,350 range.  Technical analysts also recommend a 'Buy on Dip' strategy in the current market set-up.  Any dips near 24,550 would offer good entry point for the short term. On the downside, 100-Days Exponential Moving Average (100-DEMA) support is placed near 24,330. As long as index sustains above it, traders are advised to adopt buy on dips strategy, says Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates.  On the upside, the Nifty could test the levels of 24,800 - 25,000 in short term, Hrishikesh added.  In case of the Bank Nifty, the analyst expects some short-term consolidation with the index seen facing short term resistance near the 53,900 - 54,000 levels. Once, the Bank Nifty sustains above 54,000 levels, then rally could extend further towards 54,500. On the downside, 52,850 will provide immediate support for the index, followed by 52,500.  Stocks in F&O ban period today  Granules India, Manappuram Finance, PVR Inox and RBL Bank are the 4 stocks placed under F&O ban period on Tuesday.