F&O Watch: Market starts August series with record high OI; bias bullish

Nuvama Alternative & Quantitative Research expects the bullish momentum in the market to continue with sectoral rotation in August derivatives series.

The Nifty ended the July series on Thursday with a gain of 1.5 per cent, after swinging in a range of 1,000 points. IT, FMCG, and Pharma sectors drove the gains with impressive increases of 11 per cent, 10 per cent, and 8 per cent respectively, said Nuvama Alternative & Quantitative Research in its rollover analysis note.

Conversely, the Banking sector exerted downward pressure, with Nifty Bank ended 3.5 per cent lower, and Metals saw a 6.5 per cent decline.

FIIs were net buyers to the tune of $3.3 bn, while DIIs continued to support the market with a deployment of $0.73 bn in the July series, the Nuvama note stated.

 

Rollovers to August

The rollovers to August series have taken place with market-wide open interest (OI) at historic high. The Nifty OI base, however, has decreased.

The Nifty futures rollovers stood at 70 per cent vs. the average of 71 per cent (in the last three series). Alongside, Nifty futures will start the August series at lower OI base of Rs 33,600 crore as against Rs 36,400 crore seen at the start of July series, the Nuvama report said.

The overall, market-wide futures OI at the start of August series stood at Rs 4.51 lakh crore (historic high) as compared to Rs 4.32 lakh crore at the start of July series. Market-wide rollovers were at 89 per cent, higher than the 3-month average of 88 per cent.

Data reveals that FII have gone lighter on index longs while added more long positions in (Single Stock Futures) SSF. Their long OI in index futures stood around 62,000 contracts as against 319,000 contracts. Net long OI in SSF stood slightly higher around 672,000 contracts at the start of August series when compared with 610,000 net long contracts at start of July series.

Sectorally, meaningful OI addition on the long side was seen in FMCG, Pharma, Oil & Gas and Chemicals. Whereas, shorts build-up was visible in Banks and Metals.

Outlook for August Series - Choppy with bullish bias

The August series is expected to be action-packed, driven by the ongoing earnings season. We expect the bullish momentum to persist, with the Nifty likely to settle around 1 per cent higher, said the Nuvama note.

At the sector level, Banking and IT may underperform, with exception of HDFC Bank, which should see interest due to the MSCI weight up update announcement on August 13. There is notable interest in HDFC Bank around Rs 1,550 - Rs 1,600 levels, the note stated.

Among other stocks, research firm, expects Polycab, Havells, ABB, Crompton Greaves, Trent, Vedanta, Ashok Leyland and Maruti Suzuki to perform well.