Derivatives: Trend indicates absolute bullishness but the expiry week will experience volatility
RBI sent a google with hike in repo and reverse repo rate by 25 basis points each; considering rising inflation, monetary measures were in April 2010, but they were announced suddenly on a Friday, the 19th March 2010
Extremely bullish scenario prevailed all throughout the previous week after an encouraging Q4 March 2010 advance tax figures of top Indian firms. Besides sustained buying by foreign funds and revised India's rating outlook to stable from negative by the global rating agency Standard & Poor's on Thursday fuelled the up move. S&P estimates that India's gross domestic product will grow 8% in the year ending March 2011, higher than its forecast earlier, adding India's external position was resilient. The S&P CNX Nifty appreciated 125.80 points to close at 5262.80 during the week ended 19th March 2010. All throughout the week the nifty future remained at a premium to the underlying and on Friday the premium widened to 11.90 points. The average volume in the F&O segment increased to Rs 77838 crore during the week under review. Significant unwinding of open interest (OI) was witnessed in the March series all throughout the week for both the nifty and the stock futures, while handsome addition of OI was witnessed in the April series. For e.g. the nifty march series shed 2.93 lakh shares in OI while the April series witnessed 14.78-lakh shares addition in OI. The addition indicated long built-up in the April series as short positions in the near month was covered. The nifty march OI stood at 2.21 crore shares while the OI in the April series stood at 69.26 lakh shares.
Similar was the trend in some of the major stock futures as well. For e.g. Reliance March series shed a significant 14.51-lakh shares in OI correspondingly April series added 14.20 lakh shares in OI. The total OI in March series for Reliance stood at 1.04 crore shares while the April series stood at 31.25 lakh shares. Virtually all the major stock futures exhibited similar trend. On 19th March 2010 the overall march series stock futures shed 9.72 crore shares in OI while the April series stock futures added 11.45 crore shares in OI. It was so evident that short positions were aggressively cut in the near month and the trend do look like aggressive fresh long positions being built up so soon in the April series.
The nifty option trend indicated bullish scenario with strong activity at the March 5200 and 5400 strike calls. The March 5300-strike put was the most active with addition of 8.23 lakh shares in OI thus indicating put of this strike being wrote aggressively. The trend in the call strikes indicated un-winding of the short positions. In the April series fresh call buying was witnessed in the nifty 5200 and up strikes as well while put being aggressively wrote of these same strikes. The 5400 strike march call OI increased by 5.35 lakh shares to 40.57 lakh shares, while the 5200 strike call of the same series shed 3.90 lakh shares in OI on Friday to take the total OI to 44.62 lakh shares indicating un-winding of calls wrote on this strike.
The April series nifty 5200, 5300 and 5400 strike OI increased by 2.23 lakh shares, 1.20 lakh shares and 1.26 lakh shares respectively, while the April nifty puts of 5000, 5100 and 5200 strike witnessed addition of 4.23 lakh shares, 1.35 lakh shares and 4.02 lakh shares respectively.
Although the trend turned absolute bullish, extreme volatility may be expected in the proceeding week, as it is the March series expiry week. In the absence of any negative triggers the nifty may well cross the 5400 mark quiet comfortably if any inference can be drawn from the current trend. At the same time the global market will continue to remain crucial
FOR THE PAST THREE MONTHS:
