Enough room for upside

F&O OUTLOOK

The benchmark indices closed at new all-time peaks despite the burgeoning open interest. The BSE Sensex gained 166.65 per cent at 15732.20, while the S&P Nifty rose 53.30 points to 4619.35.

As expected, the markets had opened on a weak note, but charged up within a few minutes of trade. Bulls were in full command and bears had to cover their positions. The short covering saw the discount to July futures series moving down to an intra-day high of 24 points to just four points at close.

The open interest of the carried forward trade rose to a new high of 96,125 crore. The five day-relative strength index rose to 92 on Monday which indicate an overbought position.

The put/call ratio of the Nifty open interest was marginally down to 1.77 from 1.79 on Friday. The Nifty rollover to August series was 28.89 per cent, while the stocks futures rollover was 27.74 per cent.

Investors were not unduly worried over the higher open interest as most of these will expire on July 26. Of the total open interest of Rs 96,125 crore, only a notional Rs 26,144 crore is for options.

Open interest worth Rs 20,215 crore (Nifty Rs 6,362 crore and stocks futures Rs 13,761 crore) has been carried forward so far, which is manageable.

Monday's rally was led by index stocks Hindustan Unilever, Bhel, Larsen & Toubro, ACC, State Bank of India, Tata Steel and Reliance Industries. The advanced decline ratio was negative on the NSE while it was 1:1 on the BSE. The markets have got into a healthy habit of correcting intra-week and reversing from the support levels.

According to an analyst , despite the recent run-up, the indices are still far away from the abnormally overbought levels, on technical studies and, hence, there is enough room for a further upside.

Taking cues from Pattern, Elliot & Gap studies, the indices are set to move beyond 16200/4700 levels in the next one to three weeks, which have been set as short-term targets.