As expected, the Nifty found support at 2,540 on sustained buying in bluechip stocks from the banking, IT, metal sectors and also from index heavyweights such as Reliance Industries, HDFC and Bharti Airtel.
The Nifty closed at 2,620 on Friday, up 43 points over its previous close of 2,577. The Nifty March futures witnessed short covering as it closed at 12 points discount to spot and also shed an open interest of 1.39 million shares.
The bounce-back is expected to continue on Monday and the Nifty would try to pierce the 2,660 levels. The resistance is expected to be around the 2,700 levels. The 2,600 call options witnessed a short covering of 1.06 million shares from traders who expected the index to get support at around 2,600. The 2,700 call options added an open interest of 424,100 shares on a trading volume of 1.01 million shares.
Unwinding was observed in the 2,600 and 2,700 put options, while the 2,500 put option has added an open interest of 934,700 shares. The 2,500 call option now hold an open interest of 10.20 million shares, which is 30 per cent of the total OI in put options. This means the index has strong support at 2,500 and may bounce back whenever the Nifty slides below the 2,540 levels.
Short covering was seen in key heavyweights such as Reliance Industries, HDFC Bank, State Bank of India, Tata Steel, Bharti Airtel, NTPC and Reliance Communications. Open interest in these stock futures has declined by over 400,000-800,000 shares each, indicating that F&O traders have covered their short position at lower levels.
Technically, the market is trading near its oversold zone and that could trigger a small recovery early next week. The activity in the Nifty options suggests a rangebound movement between the 2,500 and 2,750 levels. However, below 2,500, the Nifty may test the 2,200 level on the downside. The support at 2,525 and a positive crossover of 2,660 would be key to further recovery in the index.
