Weekly view:

Consolidation in Nifty likely to continue in result season

Amit Gupta amit.gup@icicisecurities.com
Azeem Ahmad azeem.ahmad@icicisecurities.com
Raj Deepak Singh rajdeepak.singh@icicisecurities.com
October 17, 2014
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Deal Team At Your Service
ACC (ACC)
Buy ACC October Future in the range of | 1380-1395. Target | 1500 Stop loss | 1326
Rationale:
Liquidation pressure was first seen in the cement space at the start of the September series. ACC also witnessed a fall
in the September series and tumbled over 11% till | 1390. In this fall, the OI increased 40% to 7100 contracts
indicating short build-up. A major chunk of these short positions got rolled in the current series. In the current series,
the stock has been defying the fall seen in boarder markets, which is triggering short covering in the stock. This
closure of short positions could take the stock back to higher levels of | 1520 in the coming sessions.
IndusInd Bank (INDBA)
Buy INDBA October Future in the range of | 649-655. Target | 710 Stop loss | 622
Rationale:
In the current decline, most stocks have faced long liquidation. However, stocks like IndusInd Bank not only withstood
the selling pressure but also gave a break out to records highs post a good set of quarterly numbers. Towards
September end as the stock fell marginally from 635 to 600 levels, short traders increased the stock OI by 20% to
16300 contracts. Post its results, the stock has started to see closure in this short OI and is likely to move up further as
there are considerable shorts, which are still stuck in the stock. Thus, we recommend a buy in the stock for a target
price of | 710.
Weekly Recommendations
Last week recommendations follow up
Date Underlying View Strategy Reco Target SL Profit/Loss Comment
10-Oct-14 HDFBAN Bullish Buy Future 862 915 835 6500 Profits booked
10-Oct-14 DRREDD Bullish Buy Future 2955 3175 2855 -2500 Closed in loss
The Week Gone By
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Deal Team At Your Service
Volatility remained high last week as well and after holding 7800 levels for a while Nifty slipped in the Thursdays
session and closed the week down by almost 1%. Losses could have been much higher had Banking heavyweights
not come for the rescue as Bank Nifty gained more than 3% during the week. However, stocks from Technology and
Metals space observed significant selling pressure.
Global weakness was the key attributer in the current market decline and FIIs remained net sellers throughout the
week. US indices turned flat on year till date basis while DAX turned negative.
After surpassing 50 DMA levels of 13.5, Volatility index continued to rise and closed the week above its 100 DMA
levels of 15.2. Immediate decline in Volatility index is not expected and it may move towards its 200 DMA levels of
17.5 in the coming sessions.
During the week, major gainers in the Nifty were Indusind Bank (6%), Axis Bank (5.9%), NMDC Ltd (5.1%), Coal India
(4.6%) and State Bank of India (2.9%)
On the other hand, Nifty losers of the week were DLF (-27.5%), HCL Tech (-13.3%), TCS (-8.8%), Hindalco Industries
(-7.1%) and Sesa Sterlite (-6.8%)
Nifty consolidated around highest Put base of 7800
Nifty highlights
Week on week Spot Fut COC(%) Tot Fut OI PCR OI PCR Vol ATM IV (%)
Current 7780 7817 13.4 17899750 0.83 0.94 17.0
Previous 7860 7887 6.3 17221850 0.87 0.93 12.7
Change (%) (1.0) (0.9) - 3.9 - - -
Outlook for coming week
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Nifty: Consolidation likely to continue in result season
The Nifty closed the week below 7800 for first time since August. Level of 7800 still holds highest Put base. Hence, if
an immediate recovery is not seen above this level, the Nifty may see more selling pressure towards expiry
On downsides, the crucial 100 DMA is at 7730, which acted as an immediate recovery level. This was the panic low
created in Thursdays session. If the Nifty slips below this level, the fall may extend till 7600
The volatility has surged till 16.4 levels from 10.3 levels from September 22 when FII selling started in the cash
segment. This has happened on account of buying seen in OTM Put options of 7400 and 7500 strikes
Thursdays fall was quite similar to the fall seen on October expiry. The high made in the October expiry was 8018,
which was not taken out on a closing basis thereafter. Thursday's high was close to 7900. Hence, closing above this
level may reverse the current weak trend of the market. The highest Call addition last week was also seen at 7900 of
2.7 million shares. Hence, it remains an important hurdle on any extended recovery.
Options base for October Series
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Deal Team At Your Service
Banking heavyweights have shown lot of resilience in the recent fall of the Nifty. Both private banking and
PSU banking stocks are in buying momentum. The Bank Nifty has outperformed the Nifty in the recent fall,
which was mainly driven by technology heavyweights
The highest Put base of the Bank Nifty is placed at the 15000 strike, which has been the highest in the last few
series. On the higher side, it has been inching higher towards the highest Call strike of 16000. Sustainability
of this, may lead to short covering in this Call option leading to good upsides in the banking index
Since September 26, the Bank Nifty has been consolidating around 15500 and its open interest has increased
7%. At the same time, the Nifty has witnessed continuous closure of more than 12% on account of weakness
seen in non-banking heavyweights. We believe long positions have been formed in the Bank Nifty, which
may lead to upsides till 16500. Major support for the banking index is at 15500
The price ratio of the Bank Nifty/Nifty has come above the resistance of 2.0 levels, which was not taken out in
the last five months. Above this level, the price ratio may even move towards 2.15 levels.
Bank Nifty: Immediate support at 15500; its out performance is likely to continue over Nifty
Bank Nifty options build up
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Deal Team At Your Service
FII outflows continue for fourth consecutive week, leading Nifty to close below 7800..
FII & DII flows
* FII and DIIs net figure is in million USD as per provisional data
In the last four trading sessions, FIIs have pulled out close to half billion US$. These outflows are unnerving
the broader markets. In the last four weeks, they have pulled out continuously close to US$1.1 billion.
However, in the same time frame, DIIs have tried to lend some support as they have bought close to US$1
billion but their value buying has not prevented the further weakness in Nifty. Thus, we believe that till the
time FIIs do not start to buy in the cash segment any pullback in the Nifty is likely to be short lived.
In the F&O space, there has been constant long liquidation in the index future segment by FIIs and in the last
four trading sessions they have liquidated close to US$550 million. At the same time they have bought over
US $ 660 million of Index Options to hedge their cash portfolio.
Key trigger for the current sell off was the slowdown seen in European region. Dax has fallen over 13%
since the start of September. This fall had a ripple effect on global equity markets. Since September the
European market weakness has wiped out over US$ 5.5 trillion from stock markets worldwide. Going ahead
as well, the economic indictors of Europe and ECB action will be keenly watched.
We continue to maintain our view on INR move towards 63, on the back of dollar strength. Slow
depreciation of INR is happening due to inflows continued in the debt segment where 10-year yield has
come down to 8.36.
DII
Date Index Fut Stock Fut Index Opt Cash Cash
10-Oct -236.69 -28.50 359.33 -105.03 90.26
13-Oct -132.87 -3.47 104.79 -92.46 91.65
14-Oct -48.99 15.10 75.95 -109.92 80.12
16-Oct -117.2 58.6 117.9 NA 107.44
FII
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Deal Team At Your Service
S&P 500: Likely to witness some bounce back towards
1950 from 1860 levels: Since December 2012, decline in
S&P was getting arrested near its 100 DMA and did not
spend much time below these levels. However, this time,
S&P has breached its 200 DMA at 1905 convincingly. It was
last breached in December 2012. Hence, any intermediate
recoveries in the index are likely to be arrested near 1950.
On the downside, we believe the current downtrend may
find support near 1840-1860 and a marginal recovery
towards 1950 may be seen. The US volatility index (VIX) is
currently trading at the highest level since June 2012 near
24 suggesting prevailing jitters in the US markets.
Dax: 8500-8600 major support for Dax. It may consolidate
above these levels for upsides till 9200-9400 in near term:
Due to a sharp decline in the index, no major Call build-up
was visible in near the money strikes. The only noticeable
Call base is at the 9200 and 9400 strike, which may remain
a crucial hurdle for the Dax in days to come. Among Put
strikes, major Put options concentration is placed at the
8800 and 8500 strikes, which are likely to remain important
supports for the Dax in the near term. The level of 8500 is
also the breakout level of the index seen in May 2013.
Hence, we believe the German index is likely to find
support near these levels in the days to come.
S&P: Likely to witness some bounce back towards 1950 from 1860 levels
Dax Index
S&P Index
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Deal Team At Your Service
Stock Current OI CMP % Chg in OI % Chg in price
Bank Baroda 8318 873 27.34% 1.10%
Union Bank 4896 218.2 18.72% 9.32%
Indusind Bank 12597 668.9 17.88% 7.02%
Idea 8739 154.95 15.12% 0.81%
Bajaj Auto 11056 2369.95 14.99% 0.42%
Stock Current OI CMP % Chg in OI % Chg in price
TCS 42057 2443 33.79% -9.28%
HCL Tech 13066 1511 28.72% -13.17%
M&M 10329 1261.1 28.47% -4.83%
Ultratech Cem 8918 2326 27.64% -6.86%
CESC 2188 672.35 26.55% -8.60%
Stock Current OI CMP % Chg in OI % Chg in price
Kotak Bank 5183 1005.75 -13.57% -0.23%
Tata Com 5490 366.95 -9.23% -3.17%
Biocon 10037 469.8 -8.86% -3.13%
Infy 31252 3875 -8.36% -0.09%
Tech M 20637 2278.5 -6.42% -3.20%
Stock Futures Scanner .
Long build-up
Long closure Short covering
Short build-up
Stock Current OI CMP % Chg in OI % Chg in price
Oriental Bank 3001 247.25 -11.71% 9.99%
PFC 3951 253 -10.25% 4.83%
Voltas 3741 231 -7.33% 1.58%
SAIL 9267 76.3 -7.13% 7.31%
Axis Bank 16818 404.2 -6.88% 6.59%
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Deal Team At Your Service
Stock Expiry Strike OI in Contract % Chg in OI Stock Expiry Strike OI in Contract % Chg in OI
TCS 30-Oct 2800 6586 168 TCS 30-Oct 2700 2223 372.0
RELIANCE 30-Oct 1000 8481 39 DLF 30-Oct 100 1485 78.3
DLF 30-Oct 120 1473 147200 TECHM 30-Oct 2300 962 268.6
HEROMOTOCO 30-Oct 3000 1435 104 INFY 30-Oct 4000 675 2009.4
TECHM 30-Oct 2500 1807 63 SBIN 30-Oct 2500 1103 78.8
Open Interest Additions
Calls Puts
Stock options OI activity .
Top liquid stock options
Stock Expiry Strike OI in Contract % Chg in OI Stock Expiry Strike OI in Contract % Chg in OI
INFY 30-Oct 3900 3588 -17.8 INFY 30-Oct 3500 374 -63.9
RELIANCE 30-Oct 940 3009 -14.8 RELIANCE 30-Oct 920 153 -67.3
DLF 30-Oct 200 623 -33.9 DLF 30-Oct 140 711 -16.7
AXISBANK 30-Oct 390 238 -49.5 HDFCBANK 30-Oct 840 212 -31.8
DLF 30-Oct 180 774 -21.2 APOLLOTYRE 30-Oct 200 134 -38.8
Calls Puts
Open Interest Closures
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Deal Team At Your Service
India:
18 Oct : Quarterly Result of LIC Housing Finance & Ultratech Cement
20 Oct : Quarterly Result of Shriram Transport Finance, Exide & Idea
21 Oct : Quarterly Result of PNB, Cairn India, JSW Steel, United Phosphorus & HDFC Bank
22 Oct : Quarterly Result of Wipro, Asian Paints, Kotak Bank, M&M Finance & HDFC Ltd
US:
21 Oct : Exiting Home sales
22 Oct : MBA Mortgage Applications & CPI
23 Oct : Initial Jobless Claims & PMI Manufacturing
24 Oct : New Home Sales
Euro zone:
23 Oct : PMI Manufacturing, Services and Composite
23 Oct : Consumer Confidence
Germany:
20 Oct : PPI
23 Oct : PMI Manufacturing, Services and Composite
24 Oct : Gfk Consumer Confidence
Japan:
21 Oct : All Industry Activity Index
22 Oct : Trade Balance
23 Oct : PMI Manufacturing
China:
21 Oct : Industrial Production & GDP
23 Oct : PMI Manufacturing
UK:
20 Oct : Rightmove House Prices
24 Oct : GDP
Forthcoming Events and Triggers
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Portfolio allocation in Derivatives products
Trading Portfolio allocation
It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives
research products.
Please avoid allocating the entire trading corpus to a single stock or a single product segment.
Within each product segment it is advisable to allocate equal amount to each recommendation.
For example: The Daily Derivatives product carries 2 intraday recommendations. It is advisable to allocate equal
amount to each recommendation
Product wise Max allocation Frontline Mid-cap
allocation per stock Stocks stocks
Daily Derivatives 5% 2-3% 2 Stocks 1% 2-3% Intraday
Weekly Derivatives 10% 3-5% 2 Stocks 3-5% 5-7% 1 Week
High OI stock 5% 2-3% 2-3 Stocks 5-7% 7-10% 1-2 Weeks
Monthly Derivatives 15% 3-5% 4-7 Stocks 7-10% 10-15% 1 Month
Global Derivatives 5% 2-3% 1-2 index strategy - - 1 Month
Stock Trader/ Stock in Focus 15% 2-3% 5-6 Stocks 7-10% 10-15% 3 Months
Alpha Trader 5% 2-3% 2-3 Alpha strategy 5% - 3 Months
Volatility Insights 5% 2-3% 1-2 Strategy 8-10% 10-15% 1-2 Month
ArbitrageOpportunity 5% 2-3% 2-3 Stocks > 2.5% >2.5% Event Based
Positional / Daily Futures 10% 2-3% 8-12 Stocks 1-3% 2-5% 1-14 days
Index option & Strategy 10% 3-4% 2-5 Nifty 2-3% - 1-14 days
Stock option & Strategy 5% 3-4% 2-8 Stocks - 3-5% 1-14 days
Currency Futures 5% 3-4% 3-5 Calls - - Intraday
Duration Products
Allocation
Number of Calls
Return Objective
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Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1
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Floor, Akruti Trade Centre,
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Andheri (East)
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research@icicidirect.com
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