Nifty, Bank Nifty PCR turns bearish; Longs added in MidCap; Shorts in RIL

Derivatives market update Oct 01: FIIs continue to hold more than 4 long positions in index futures for every short bet. Proprietary trades hold 5 shorts for every bullish bet in index futures.

Futures & Options (F&O) Insights for Tuesday, October 01, 2024: Stock market traders are likely to be on their toes following yesterday's debacle on Dalal Street and the upcoming trading holiday. 

The recent bullish sentiment seems to have taken a hit amid Monday's meltdown. The NSE Nifty October futures cracked 1.4 per cent to 25,990, while the premium rose to 179 points. This was reportedly the biggest single-day loss on the Nifty in the last two months.

Gift Nifty indicated a bleak start to the week, and our benchmark index, Nifty, opened with a gap down. As the day progressed, prices continued to slide lower throughout the session without any significant intraday bounce, eventually closing down 1.37% just above 25800.

 

The Nifty wiped out last week's entire gains on the inaugural session of the week. This was expected, as various indicators entered the overbought zone, and prices reached a key resistance area last week around 26,200 - 26,300, marked by Fibonacci extensions on the higher-degree chart, said Rajesh Bhosale, Equity Technical Analyst at Angel One.

Going forward, we anticipate that profit booking may continue, and prices could test the 20-EMA around 25,500. On the flip side, resistance is likely to be found at 26,000, followed by a bearish gap at 26,100 left on Monday, the analyst added. 

Meanwhile, the Bank Nifty futures cracked 1.5 per cent and the premium jumped to 457 points as against 386 points the day earlier. 

Technically, the Bank Nifty formed a big bearish candle on the daily chart, followed by the Morubozu candle, suggesting further weakness, said Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates.

On the downside, immediate support is expected near 52,720, where its 21-DEMA is placed, followed by 51,890 at the 50-DEMA. In the short term, any bounce toward 53,300 – 53,350 should be used as an opportunity for profit booking, the analyst said in a note.

Key Insights from Nifty, Bank Nifty options data

The Nifty options market reflects a shift in sentiment, with call writing overtaking put writing, breaking a seven-day bullish streak. Significant open interest at the 26,000 call (89.63 lakh contracts) and 25,000 put (53.78 lakh contracts) signals resistance at 26,000, said Dhupesh Dhameja, Derivatives Analyst at SAMCO Securities in a note.

Increased put activity in the 25,500-25,800 range indicates call writers are pushing lower, while unwinding of puts highlights bearish dominance. The put-call ratio (PCR) dropped to 0.69 from 1.04, reinforcing the cautionary stance. Max pain stands at 25,950, marking a key level for future movements, the analyst said.

Echoing similar views, Sahaj Agarwal, Senior Vice President, Head of Derivatives Research at Kotak Securities said there's a significant open interest build-up at the 26,000 Call and 25,000/26,000 Put levels. For the monthly series, a build-up is observed at the 26,600/27,000 Call and 25000/26,000 Put strikes.

The Nifty Put-Call Ratio reflects negative sentiment among market participants. We expect limited upside and a potential consolidation in the near term, Sahaj Agarwal stated in a note.

In case of Bank Nifty, significant open interest was observed at the 54,000 call (37.25 lakh contracts) and 52,000 put (22.89 lakh contracts), with heavy trading concentrated between the 53,100 - 53,200 calls and 52,800 - 52,900 puts, said Dhupesh Dhameja.

Increased put activity in the 52,500-52,800 range suggests call writers are adjusting to lower levels, while put unwinding signals growing bearish dominance. The put-call ratio (PCR) dropped to 0.58 from 0.69, reinforcing caution as call writers dominate, the note concluded.

FII, DII trading activity in F&O - Here's all you need to know about who bought and who sold in the derivatives market on Monday.

As per data available from the NSE, FIIs net sold 23,144 contracts of index futures on September 30 for a consideration of Rs 1,702.25 crore. FIIs net sold 14,385 contracts of Nifty futures for a consideration of Rs 941.74 crore, and 12,886 contracts of Bank Nifty futures for Rs 1,034.87 crore. FIIs net purchased 4,356 contracts of MidCap Nifty futures yesterday.

Despite the net sales, FIIs overall long-short ratio in index futures remained extremely bullish at 4.2:1. This ratio implies that foreign investors continue to hold more than 4 long positions in index futures for every bet on the short side.

The NSE data shows that, FIIs pared some long positions in Nifty and Bank Nifty, while added fresh long positions in MidCap Nifty futures. The open interest (OI) in Nifty and Bank Nifty declined by 5.1 per cent and 12.9 per cent, respectively; while it rose by 6 per cent in case of MidCap Nifty.

Meanwhile, retail investors' reduced some of their short bets in index futures amid yesterday's market fall. The long-short ratio rose to 0.58:1; this implies that retail investors hold 3 long positions in index futures for every 5 bets on the short side of trade. Retail short positions are at the lowest in the last 7 trading days.

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.

Interestingly, proprietary traders added aggressive short bets in index futures on Monday. The long-short ratio in this segment of trades took a sharp dive to 0.26:1; this implies proprietary traders hold near about 5 short positions in index futures for each long bet.

Bullish & Bearish stocks

Balrampur Chini and Hindustan Copper witnessed some long unwinding on Monday as the stocks ended marginally in red alongside a decline in open interest. Both stocks were in an uptrend prior to this.

On the other hand, Reliance Industries saw fresh short build-up, as the stock tanked 3.4 per cent on the back of 10.4 per cent increase in open interest. Similarly, SBI and Indian Hotels also saw build-up of some short positions.

Stocks in F&O ban period on Tuesday

4 stocks are placed under futures & options ban period on Tuesday. Balrampur Chini, Bandhan Bank, Hindustan Copper and RBL Bank are the 4 stocks.