Nifty Base Moves Lower While Foreign Investors Remain Net Short In Derivatives Market

The NSE Nifty Index and Bank Nifty wiped out their gains for the year on Tuesday after falling for the second-straight session following sustained selling pressure.

Higher crude oil prices and weakness in Indian rupee weighed on Indian markets this week, with both the indices breaching their 20-day moving average and ended below it.

India VIX—the popular fear gauge that tracks volatility—rallied 14 percent in the last two sessions. A surge in volatility could pose hurdles for any revival.

Index Futures

Both Nifty and Nifty Bank Futures Open Interest didn’t move much on Tuesday after a steep fall. Open interest base is still hovering around the levels when the September series started, indicating no fresh positions have been added.

With the fall in the last two days, the base for the market moves lower as maximum open interest on call side for Sept. 19 expiry is at 11,100 from 11,200 and on the put side at 10,800 from 10,900. Call writing continued for the second-straight session at 10,900 and 11,000 call strikes. Put writers unwound their position with 11,000 put strike of Sept. 19 expiry shedding nearly 12 lakh shares in open interest.

Nifty put call ratio fell below the mark of one at 0.98 indicating there are more of short bets taken by writing calls.

FII Positioning In Derivatives

Index Futures

Foreign institutional investors started the September series with net short positions on index futures which continues so far. They have added short positions in the last two sessions.

Index Options

Foreign investors have added more short positions on index options in the last two trading days by unwinding long positions on call long side and adding contracts on put long and call short side.

On index options, too, foreign investors have placed more bets on short side where they have bought more of puts and written more of calls.

Here’s what analysts said

“Nifty has broken its immediate support of 10,950 and has formed a bearish belt hold candle on daily scale and also broken its rising support trend line by connecting swing lows of 10,637, 10,746 then 10,880 levels,” Chandan Taparia, associate vice president of Motilal Oswal Securities Ltd., told BloombergQuint. “It started to form lower highs in the last two trading sessions and now till it holds below 10,880 zones then weakness could continue towards swing low of 10,750 then 10,700 zones while on the upside major hurdle is seen at 10,950 then 11,000 levels.”

“Nifty Bank formed a big bearish candle on daily scale and corrected by around 800 points during the day,” he said. “It has broken immediate support of 27,500 levels and now till it remains below 27,500 zone, weakness could extend towards 26,750 then 26,500 levels while on the upside hurdle is seen at 27,500 then 27,750 zones.”

“From being on the verge of overcoming the 11078 level on the spot, the Nifty has turned topsy turvy to breach the support level of 10878 riding piggy back on the crude oil spike and a strengthening VIX,” Hemen Kapadia, senior vice president of KR Choksey Securities, told BloombergQuint. “The CBOE Vix has also begun its upward journey inducing worldwide chaos and mayhem,” he said, adding: “The Nifty has clearly reflected near term weakness, support comes in at 10,785, 10,665, 10,550 while resistance comes in at 10878, 10,979 and 11,078. Outlook remains weak as of now.”