There was uncertainty on Dalal Street on the day of derivatives expiry on Thursday after the Nifty crashed below 5,660 to close at the lower end of the support of 5,600. We had indicated in this column that the market was likely to remain weak on Thursday.
The trading volume in Nifty options in the new February series indicates participants are cautious about buying the 5,400-5,500-strike call options, even though the February futures closed at 5,630.
The rollovers in derivatives continued to be weak, hinting that participants were unwilling to gamble amid such uncertainty. Put writers were unwilling to sell the 5,800-strike put, with a few of them even covering short positions in the 5,700-strike put. This suggests uncertainty is beginning to cloud the market, with derivatives players expecting a free fall if the index closes below 5,600.
Several key stock futures such as Infosys Technologies, ICICI Bank, Reliance Industries, Hindustan Unilever and Mahindra & Mahindra closed on a weak note.
The market picture chart suggests a volume-based downside for Infosys around Rs 3,180, ICICI Bank around Rs 997, Reliance around Rs 926 and Hindustan Unilever around Rs 264.50. TCS may be volatile, with support at Rs 1,180 and an upside potential at Rs 1,223.50.
The Nifty February futures settled at a 20-point premium at 5,627 and carry 19.44 million shares in open interest. Liquidity providers sold Nifty futures in the initial balance range (5,676-5,734), which hints at a potential resistance zone on Friday.
The value area (5,645-5,695), which accounted for 63 per cent volume and 72 per cent time-price opportunities (TPOs), saw sell transactions from top traders. The futures also closed below the lower band of the value area, with 28 per cent volume and 14 per cent TPOs. This indicates value traders are not supporting the market. Hence, the volume-based selloff from 5,734 can take the Nifty around 5,532. According to Moses Harding, head of Global Markets Group, IndusInd Bank, the short-term outlook is weak, despite the soft stance of the Reserve Bank of India. Foreign institutional investors seem to be losing interest. The improved sentiment in western economies will reverse the flow of funds. Moreover, hot money will come only on confirmation of a bull rally.