Nifty: Will the market rally yet again as FIIs turn overtly bearish in F&O?

Derivatives market update Oct 11: Last time around, in June, the Nifty rallied sharply after FIIs turned this bearish and the long-short ratio dipped to near 0.5. Will history repeat?

Futures & Options (F&O) Insights for Friday, October 11, 2024: The Nifty 50 ended on a tepid note yesterday amid thin volumes in the derivatives segments despite the Nifty weekly options. 

Today, the on-going Israel-Iran conflict, Q2 earnings impact and spike in crude oil prices could weigh on the market sentiment.

Meanwhile, the National Stock Exchange (NSE) had decided to keep Nifty 50 weekly options and discontinue others in order to comply with new derivative rules.

Here's what happened in the F&O segment on Thursday

The open interest (OI) in NSE Nifty October futures rose by 1.2 per cent, while the premium increased by 19 points to 120 points. 

Technically, there have been insignificant changes in the market outlook, construing a challenging market environment with no clarity on the trend. Also, the small-bodied candlestick formation signifies tentativeness among the counterparties, affirming the complexity of the markets, said Osho Krishan, Senior Analyst - Technical & Derivatives at Angel One in a note.

On the level-specific front, 24,800 remains a major support for the Nifty, and a decisive breakdown could only disrupt the trend for further correction. On the higher end, 25,250 - 25,300 remains a formidable hurdle in the comparable period, the analyst stated.

Meanwhile, the Bank Nifty futures gained 0.7 per cent alongside a 3.5 per cent dip in OI. The futures premium also dropped to 250 points from 367 points the day before.

Technically, on the daily chart, the Bank Nifty formed a big green candle, indicating strength. However, the index is facing resistance near the 51,700 – 51,800 levels. If the index sustains above 51,800, Bank Nifty could test levels of 52,500–52,800, said Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates in a note.

FII, DII, Retail: Who bought and who sold on October 10?

Foreign institutional investors (FIIs) were net sellers in the F&O segment for the 8th straight trading session on Thursday. As per data available from the NSE, FIIs net sold 26,737 contracts of index futures worth Rs 1,663.62 crore. 

The NSE data shows that FIIs net sold 25,100 contracts of Nifty futures for a consideration of Rs 1,577.24 crore and 3,063 contracts of MidCap Nifty futures for Rs 198.25 crore. FIIs net bought 1,455 contracts of Bank Nifty futures yesterday.

The data shows that FIIs open interest (OI) in Nifty futures declined by another 5 per cent to 3.33 lakh contracts. The OI in Bank Nifty was more or less unchanged, while MidCap Nifty saw a 4.6 per cent dip in OI.

Pursuant to which, the FIIs long-short ratio in index futures further dropped to 0.55 - its lowest point since June 10. The FIIs long-short ratio had hit its lowest point on June 04 at 0.15 - incidentally, the Nifty bottomed out on the same day. The ratio implies that FIIs now hold nearly 2 short positions in index futures for every long bet.

Meanwhile, retail investors' raised long bets in index futures on Thursday. Their long-short ratio inched higher to 1.58 - implying presence of more than 3 long positions in index futures for every 2 short trades. Retail investors were now the most bullish in more than four months.

Proprietary traders, too, increased their long bets in index futures, with the ratio climbing to 1.45 - indicating nearly 2 long bets for every short position in index futures.

Whereas, domestic institutional investors (DIIs) long-short ratio in index futures remained steady at 0.64; meaning 2 long positions for every 3 short bets.

Key Insights from Nifty, Bank Nifty options data

Bearish sentiment persists in the Nifty options market, with call writing outpacing put writing, reflecting caution among traders as sellers remain dominant, Dhupesh Dhameja, Technical Analyst at SAMCO Securities in a note.

Significant open interest is concentrated at the 25,000 strike for both calls (2.80 crore contracts) and puts (2.63 crore contracts), suggesting a sideways sentiment. Active trading between 25,050 - 25,100 calls and 24,850 - 24,900 puts points to resistance near 25,000 - 25,200 and support at 24,750 - 24,800.

In case of Bank Nifty, significant open interest is concentrated at the 52,000 strike calls (16.83 lakh contracts) and 51,000 puts (17.98 lakh contracts). Trading activity between 51,500 - 51,600 calls and 51,300 - 51,400 puts suggests resistance near 51,500 - 51,800 and support between 51,200 - 51,400, reflecting a mildly bullish sentiment, Dhupesh Dhameja explained.

Increased put writing at 51,000 - 51,400 indicates a shift in positioning, while the calls unwinding points to an emerging bullish momentum. The put-call ratio (PCR) has climbed to 1.07 from 0.73, signalling a bullish tilt as put writers dominate, the analyst added. 

Bullish & Bearish stocks

Among individual F&O stocks, Ramco Cement, Balkrishna Industries and Atul saw some buying interest on Thursday. Whereas, Shree Cements and Sun TV witnessed selling bias.

Stocks in F&O ban period on Friday, October 11

A total of 12 stocks are placed under the futures & options ban period today. Bandhan Bank, Birlasoft, Chambal Fertilisers, GNFC, Granules India, Hindustan Copper, IDFC First Bank, Manappuram Finance, PNB, RBL Bank, SAIL and Tata Chemicals.