Consolidation around current levels

F&O OUTLOOK

The market retraced all its Monday's losses in the last two trading days due to strong global cues and short covering. We had expected this pull-back based on Call options buying at 5,100 and 5,200 strike prices.

The open interest at above levels had increased by over 80 per cent yesterday, suggesting a pull back if the Nifty were to cross the 5,000 levels.

However, the pullback lacks conviction as daily trading volumes in the derivatives segment amount to 35,000-40,000 crore as against the peak levels of 80,000-90,000 crore. The cash market turnover has declined to around Rs 20,000 crore this month from Rs 30,000 crore before the January meltdown.

The only consolation is that the FIIs have stopped basket selling in the past few trading sessions. The FIIs were net buyers of index and stock futures, amounting to Rs 1,700 crore, on February 13.

The market is likely to consolidate around current levels as Call buying is seen at the strike price of 5,200 (open interest up by 41 per cent).

The Nifty may subseqently target the 5,300 as this saw a 17 per cent increase in open interest. Strong support is emerging at around 5,100 (17 per cent increase in Put options OI).

The Nifty futures discount has reduced considerably from 42.90 points on Tuesday to 20.55 points on Wednesday and 15 points on Thursday on account of short covering in the last two days and some amount of buying on Thursday.

All the Nifty components and 29 of the 30 Sensex stocks were in the gainers list, revealing the bias in favour of large caps.