Unwinding of short positions

F&O OUTLOOK

The markets went through consolidation on Wednesday, with the Sensex and Nifty declining by around a per cent each on account of profit-booking.

Technical analyst Kamalesh Langote of vfmdirect.com expects the consolidation to continue for a day or two. There is a possibility, technically, that Tuesday's pullback may be retraced, but the oveall trend remains bullish.

The Nifty futures continued to trade at a premium, with the April futures contracts ending the day at 4,853.65 as against the spot close of 4828.85. This has dampened the rollovers, which now stand at 19.99 million shares compared with 31.64 million shares during the same time last month.

The poor rollovers in Nifty futures contracts follows the unwinding of short positions by foreign institutional investors (FIIs). While the FIIs have been net buyers of 1.24 lakh Nifty futures contracts in the last six trading days, their open interest has declined by over one lakh contracts in as many days.

This only goes to show that the FIIs have not rolled over their shorts, but are rather waiting for the Nifty to trade above the resistance level of 5,020 to make fresh moves.

The Nifty PCR has declined from 1.27 to 1.20 as limited Put options have been rolled over to the next month. The 4600 call strike has witnessed a sharp decline in open interest, while significant Call OI was added at the 4800 and 4900 strike prices.

This indicates that Nifty is unlikely to fall below 4,600 levels, while resistance is seen at 4,800 and 4,900 levels.