The Nifty opened on a positive note but faced selling pressure in the morning session and fell through the day to close below 2,600 at 2,576. The index dropped more than 2.6 per cent.
Ashish Shroff, technical analyst at Ambit Capital, expects that the index will bounce back from 2,540 as momentum indicators on the intraday chart are in buy mode and the relative strength index (RSI) is still showing oversold signs.
The options data suggest that the Nifty has strong support at 2,500 and resistance at 2,700. This means the index may move between 2,500 and 2,700 with profit booking likely around 2,660.
Options traders were today seen unwinding their short positions at 2,600 and 2,700 puts as they expected the Nifty to trade below 2,600 in the near future. Analysts and traders in the futures and options (F&O) segment are, however, expecting the Nifty to trade above 2,600. They are basing their expectations on the short-covering that was seen in the Nifty as well as some key stock futures.
In today’s trade, foreign institutional investors (FIIs) continued to be net sellers in the cash market and covered some of their short positions in index futures. The 50-bps cut in repo as well as reverse repo rates also did not prove positive for the banking sector stocks.
The fall was led by selling in FMCG, banking, realty and capital goods stocks. Index heavyweights such as Reliance Industries (RIL), ICICI Bank and State Bank of India (SBI) aggravated the sentiment by plunging more than 5 per cent each. Another contributor to today’s fall was the weak opening for European markets.
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Nifty March futures witnessed selling pressure, which is evident from the fact that 60 per cent of the total volume changed hands through the sell side.
The March futures added an open interest (OI) of 5.55 million shares during the course of the day. However, it was left with an OI of 1.30 million shares at the close, indicating unwinding of long positions. The trading pattern in 2,500 and 2,600 strike call options indicated mixed trend with 2.50 million shares being added as OI through buy and sell orders.
The 2,600 put options added an OI of 1.57 million shares at an average premium of Rs 68 per share, indicating that the index had strong resistance at around 2,670.