Broader markets recovered swiftly in the last few sessions, and Nifty closed the year near 18200 levels. While almost every sector apart from Pharma closed the week in green, Metal and Energy stocks were the biggest gainers of the week. At the same time, broader markets have outperformed significantly as midcap, and small-cap indices gained over 4% and 6%, respectively against 2% gains seen in Nifty. Going ahead, we believe sustainability above 18200 may trigger a fresh round of upsides toward life highs.
From the rollover perspective, Nifty futures open interest has declined marginally compared to the last series, and it was the lowest OI seen at inception since the July series as short positions were covered in recent declines. At the same time, the premium in Nifty has declined to just 85 points on Friday from 110 points seen on settlement day. Normalisation in premium bodes well with the expected stability in the markets, and we expect Nifty to trade with positive bias.
FIIs’ have turned net longs into index futures at the start of the new series. The aggressive short build-up seen in the second half of the December series seems to have been closed, and it seems like a short rollover was not done.
However, considering relatively aggressive writing at ATM and OTM Call strikes than Puts, we believe moves above 18200 may trigger fresh up moves in the index.
The FII activity has been relatively subdued last week. However, in the new year, we might see some bigger participation from their end. We need to look out at their investment trends in the first few sessions, which may give us a clue about directional bias. Considering data points, a move above 18200 should be considered positive for Nifty.
Keeping the view of a rebound in the market, we feel traders should form a Bull Call spread in the index.
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Raj Deepak Singh is Analyst – F&O, Commodities, Forex at ICICIdirect
