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Nifty 50 (19,565), the benchmark index, moved up further and posted a gain of 1.2 per cent last week. On the other hand, the major sectoral index Bank Nifty (44,819) was down by a marginal 0.2 per cent.
Relatively, Nifty 50 is better positioned to gain further as per the charts and the derivatives data too falls in line with this trend. Here’s an analysis of futures and options (F&O) data of both indices.
Nifty 50
Like the underlying Nifty 50, the July futures of the index appreciated 1 per cent last week and ended at 19,599 on Friday. The rally was powered by fresh long build-ups through the week as there was an increase in the cumulative Open Interest (OI) of Nifty futures on NSE – it shot up to 124.3 lakh contracts on July 14 versus 120 lakh contracts on July 7.
The options data too shows that the participants are bullish on Nifty 50. The Put Call Ratio (PCR) of the contracts expiring on July 20 and July 27 (monthly expiry) stands at 1.26 and 1.33 respectively. Thus, traders have sold more put options than calls setting a bullish tone.
Derivatives positioning apart, the chart shows that Nifty futures contract has broken out of a resistance and thus, the price action – a rally followed by a consolidation and a breakout – hints at a sharp upside from here.
Therefore, one can execute bullish strategies. Based on the risk appetite, traders can choose between going long on Nifty futures and buying a vanilla call option. With respect to options, we suggest going for August expiry as July contracts are approaching the expiry date.
Bank Nifty
Bank Nifty, and consequently its futures contract, struggled to set up a rally like Nifty 50. Even though there were instances of a gap-up open on a couple of sessions, there were no follow-through upswings.
Bank Nifty July futures lost 0.3 per cent over the last week as it closed at 44,903 on Friday. Participants chose to move out as there was no definite trend, leading to a drop in OI – the cumulative OI of Bank Nifty futures on the NSE stood at 25 lakh contracts on July 14 compared with about 31 lakh contracts on July 7. Overall, this can be considered as long unwinding.
Coming to options, we can see a bearish bias as the PCR of July 20 and July 27 expiry contracts stood at 0.82 and 0.95 respectively on Friday.
That said, the chart shows that Bank Nifty futures is stuck between 44,700 and 45,200.
Taking the above factors into account, we would suggest not to initiate trades in Bank Nifty. Probably a break of the 44,700-45,200 will help us in forecasting the next leg of trend.
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