F&0 Outlook: Selling pressure at higher levels

The Nifty May futures closed marginally below the average index value of 4,364 per trade, indicating selling pressure at higher levels. The spot index touched an intra-day high of 4,510 while the May futures changed hands at 4,620 in a single trade. Bloomberg data suggest that 56 per cent buy side trades took place at an average index level of 4,314, indicating that bears preferred to cover short positions when index was hovering below 4,300 levels.

Trading in Nifty options suggests that the index has strong resistance above 4,400 levels and may close below the 4,300 level tomorrow. The call writers covered short positions at 4,000-4,200 calls and booked profit in 3,600-3,900 calls. Significant call writing was seen in 4,400-4,900 strikes calls. This means call buyers expect no major upside while call writers expect that the index may not move above 4,400 levels before the expiry of the May series.

The Nifty May futures added open interest (OI) of 530,250 shares at close despite a significantly higher volume of 62.55 million shares. The Nifty June futures closed on a par with May futures and added OI of 136,350 shares. This means no significant long positions got created today while traders were not willing to carry forward their long positions at premium.

The index heavyweight, Reliance Industries, closed the day on a weak note on profit-booking and build-up of fresh short positions in the May futures. RIL’s May futures declined 5.9 per cent and added OI of almost 1 million shares and a short build-up. Unitech and Infosys Technologies, too, witnessed selling pressure and fresh short build-up. We may see fresh upside in DLF, ICICI Bank and State Bank on account of short covering.