FIIs building fresh net longs in stock futures

With net longs by FIIs in stock futures indicating one of the highest levels seen in almost two years, the key indices-BSE Sensex and NSE Nifty—are expected to move upwards for the week ahead. Further, FIIs, which have been net sellers this year so far, bought Rs6,100cr worth stock futures and it's further supporting the upward bias. The gap between support level and resistance level further widened by 1,000 points and is giving more room for broad-based trading. The resistance level moved up by 500 points to 16,500CE and support level eased by 500 points to 14,500PE.

The 16,500 strike has the highest Call OI followed by 16,000/ 15,900/ 15,700/ 17,000/16,300, while 15,900/ 16,000/ 16,550/ 16,300/ 15,700 strikes recorded reasonable addition of Call OI.

Coming to the Put side, 14,500 strike has maximum Put OI followed by 14,000/ 15,000/ 15,300/ 14,700/ 14,200/14,800 strikes witnessed moderate to significant build-up of Put OI.

Dhirender Singh Bisht, senior research analyst (derivatives) at SMC Global Securities Ltd, said: "From the derivatives front, the highest Open Interest concentration in Call is at 16,000 strike which is also a psychological level, whereas in Put, highest concentration is at 15500 strike. Call writers are active at 15900, 16000 and added hefty positions. In the upcoming week, 15300-15200 act as support whereas 15900-16000 as resistance in Nifty."

As per the data from ICICIdirect.com, the call Open Interest remained largely unchanged at 15,500 strike. Last weekly settlement has not diverged much from those levels. For the coming week, similar activity is expected at 15700 Call strike. Hence, a round of covering is predicted only if NSE Nifty closes and sustains above these levels. The Put base is significantly high at 15500 strike, which should act as immediate support.

"After a sharp fall in the market, a relief rally was witnessed. Nifty futures bounced back around 500 points from the previous low and closed with a gain of more than two per cent on weekly charts. Auto stocks saw buying in last week, whereas metal stocks are still under pressure," added Bisht.

For the week ended June 24, 2022, BSE Sensex closed at 52,727.98 points, a recovery of 1,367.56 points or 2.66 per cent, from the previous week's closing of 51,360.42 points. Registering a heavy loss of 405.75 points or 2.65 per cent, NSE Nifty ended the week at 15,699.25 points from 15,293.50 points a week ago.

Bisht forecasts: "From the technical front, Nifty, on weekly charts, is able to close above its 100-day Exponential Moving Average whereas Bank Nifty is still hovering around its average."

Last week witnessed continuation of volatility. Though it fell marginally, fear gauge index is still hovering above 20 level. India VIX declined 1.58 per cent to 20.55 level.

"Implied Volatility of Calls closed at 20.19 per cent, while that for Put options closed at 21.47 per cent. The Nifty VIX for the week closed at 20.88 per cent. PCR of OI for the week closed at 1.04," observes Bisht.

NSE data points to decline of FIIs net shorts considerably last week to just over 1 lakh contracts. However, net shorts are still on the higher side suggesting limited upsides. On the other hand, net longs in stock futures remained higher indicating stock-specific accumulation. Rollover of positions into July series is likely to increase stock-specific volatility towards settlement.

On the F&O front, the net short OI from FIIs declined considerably last week as net short positions in index futures declined to just over 1 lakh contracts from 1,47,000 contracts seen last week. At the same time, FIIs have been forming fresh longs in stock futures as they bought almost Rs6,100crore in stock futures. The net longs in stock futures are one of the highest seen in almost two years.

Bank Nifty

NSE's banking index closed the week at 33,627.45 points, a major decline of 844.40 points or 2.70 per cent, from the previous week's closing of 32,743.05 points. "In Bank Nifty, highest Open Interest concentration is seen at 34000 Call and 33000 Put," remarked Bisht.

According to ICICIdirect.com, Bank Nifty recorded a sizable Call base placed at 33500 strike followed by 34000. Last week it managed to surpass and close above 33500 levels, which is a positive sign. Volatility is likely to be on the higher side due to rollover activities, but some buying momentum is expected as it has closed above 33500 levels. For the monthly expiry, major Put writing happened in the 32500 strike, which has acted as support in the last week. The 32500 level would act as a good support and, going ahead, any dips towards this level is a buying opportunity.