Nifty may retrace to 11,000; Bank Nifty likely to see more volatility: Navneet Daga

Navneet Daga

The Nifty ended weekly expiry at the highest point towards 11,215- mark, gaining around 2.9 percent, while the Bank Nifty was up around 5 percent, as the bulls remained in control.

Highlights of the week: the Bank Nifty outperformed as private banks rallies after earnings; Reliance Industries continued to surprise on the upside, pulling the Nifty along; index options PCR moved towards 1.9x mark as traders unwind calls and writing OTM puts, participants data indicated clients wise net put long positions were highest in six months, FIIs turned net buyers in cash markets, while bouts of short covering were seen in index futures data.

The Nifty index reading suggests overbought mode as PCR ratio rally towards ~2x mark, leverage trading making a comeback as almost 12 stocks moving to F&O ban period, at higher levels we remain cautious retracement is possible from 11,200.

The Bank Nifty saw its highest close in recent days above the 23k mark as ICICI Bank rallied ahead of earnings.

On sectoral front, past three sessions inability to surpass Monday’s peak capped intraday rallies in the Nifty Pharma index. A positive breakthrough above 10,500 in the index is essential to regain further momentum; failure to do so could attract profit taking.

Meanwhile, price volatility is rising in the metal space. For the metal index to attract bullish momentum, it is essential that it sustains above 2,100.

Global equity mood remained mixed as buying on dips was seen as equity volumes traded in the lower band of the curve, suggesting an increase in short-term volatility with a possible pullback move.

Massive rally seen on commodities base. Precious metals along with buoyant China equities are likely to fuel momentum in commodity stocks in India as well.

A sharp turnaround in cash-based flows from FIIs, while index derivatives data suggests short covering with the index long to short ratio trading above 1.25x mark. Stock futures saw unwinding at higher levels in the last couple of trading days.

Options positions indicate that 11,000 will act as strong support zone for July series. However, we expect consolidation of gains made on the Nifty in a tight range for next week. A trading band of 11k on the downside to supply zone near 11,300-mark is possible in the near term, options traders likely to place short Vega and Theta positions, given that volatility remains under check. The Bank Nifty is likely to be more volatile, ahead of ICICI Bank and Kotak Mahindra Bank numbers due next week.

(The author is Senior Derivatives Analyst – Institutional Equities at YES Securities.)

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