Domestic equity benchmarks Sensex and Nifty 50 settled with mild gains on Friday, May 31, snapping the losing streak of the last five consecutive sessions on value-buying as investors turned their focus on exit polls to be released after the close of the last phase of elections on June 1.
The frontline indices had fallen for five straight sessions until Thursday and are down 2.4 per cent from an all-time high hit early this week amid high volatility ahead of the Lok Sabha poll results. On a weekly basis, Sensex tanked 1,449 points while Nifty plunged by 426 points, recording their first weekly decline in three, as traders made positional adjustments ahead of exit polls and results.
Strong capital outflows by foreign investors, mixed global cues, dwindling hopes of rate cuts, and concerns over geopolitical tensions have been weighing on market sentiment lately. On the macroeconomic front, government data revealed on Friday that India has retained its crown as the world’s fastest-growing major economy in FY24. India’s FY24 gross domestic product (GDP) grew by 8.2 per cent, while January-March quarter GDP moderated to 7.8 per cent.
In its derivatives monthly rollover report, domestic brokerage firm Religare Broking revealed that Nifty 50 closed at around 22,500 after volume-weighted average price (VWAP)-based selling activity was witnessed in the second half of the day.
In its report, Religare highlighted that at 95 per cent, banking, cement and oil & gas are the sectors where the highest rollover was witnessed in the May series. Whereas at 80 per cent, is the sector where the lowest rollover was witnessed.
Also Read: India’s FY24 fiscal deficit improves to 5.63% of GDP, narrower than government’s target of 5.8%
Nifty, Bank Nifty derivates summary
Nifty futures has rolled at around 72 per cent compared to 65 per cent which is slightly higher with respect to the previous series. The Open Interest (OI) for the new contract is higher by around 20 lakhs with respect to the last month contract implying more short positions.
Bank Nifty futures rolled at 68 per cent compared to 74 per cent, lower than the previous month. Bank Nifty futures have seen anaddition of OI of around 5.6 lakh with respect to the last month. This might be because of the higher positions in Bank Nifty during the May expiry.
Which stocks to invest in June series as per Religare Broking?
Bata India, Indraprastha Gas Ltd (IGL), UPL, and United Breweries Ltd (UBL) are the top picks for the May series, according to Religare Broking.
IGL(CMP : 447):
The stock has broadly been consolidating and gained hardly anything in the May series. ‘’But the noticeable part is it added substantial OI to the tune of 32 per cent with rolls at 93 per cent. Going forward, we believe stock may come out of the range and test 490 in the near term,” said the brokerage.
Bata India(CMP : 1,392):
After a prolonged downtrend, the stock is now showing some signs of reversal. In the previous month, it gained nearly two per cent with an addition of 16 per cent OI with 92 per cent of positions being rolled. ‘’Holding 1,330, we believe the stock has the potential to test 1470-1500 levels in the near term,” said Religare Broking.
UBL(CMP : 1,842):
The stock witnessed some pullback and lost nearly nine per cent with a decline of 39 per cent OI in the May series. Rollovers were less indicating this short term downtrend may be about to end. ‘’So keeping a stop at 1,750, we expect the stock to see some positivity in the near term,” said the brokerage.
UPL( CMP : 508):
The stock ended on a flattish note i.e. hardly any change in price. Some decline of OI was seen to the tune of 12 per cent. Existing positions have been rolled at 96 per cent. ‘’The stock has been stabilizing around current levels, going forward we believe it may start moving higher. One should keep a positive approach keeping 485 as a stop,” said Religare Broking.
Outlook for June
Nifty futures contract OI started with around 144 lakh compared to 124 lakh in May. Bank Nifty futures have seen an OI of around 23 lakh compared to 18 lakh in May. The highest Nifty June monthly options OI is at 22,000 PE and 24,000 CE. Nifty 24,000 Call OI stands at around 17,7000 contracts and 22,000 Put OI at around 17,4000 contracts.
‘’At expiry, VIX was at around 24 per cent levels implying 1,400 odd points swing in the Nifty in next 30 days,” said Religare Broking. The brokerage believes that fast-moving consumer goods (FMCG) and banking are the sectors that can outperform the index in June series.
Foreign institutional investors’ (FIIs) long ratio is now at 13 per cent compared to 40 per cent previously in index futures implying more hedged positions into the June series. The IVs for options have rose substantially now at 24 per cent compared to 12 per cent implying more swing in the June series.
Technical View: The majority of the rolls which happened to the June series was on the short side. For June futures with an average price of around 22,850 which becomes a pivot for the month. Till the time Nifty trades below 22,950-23,000 on spot, the index is in a SELL ON RISE mode for the first weekly expiry.
‘’We expect the Nifty to find strong support at 21,800-22,000 levels for June series. On spot basis 21,800-23,500 might be the range for Nifty for first fortnight of June series,” said Religare Broking.
‘’Bank Nifty had traded in tandem with the benchmark for the upcoming series. Going forward, we believe this would continue. For this series, ratio wise (Bank Nifty/Nifty) has a resistance at 2.2 and support at 2.1. The ratio between Bank Nifty and Nifty is currently at around 2.16,’ added the brokerage. The major support for Bank Nifty would be around 47,000 levels. Religare Broking expects Bank Nifty to be in 47,000-40,500 levels for the first fortnight of June series.
On the outlook for Nifty 50, Ajit Mishra, SVP – Technical Research, Religare Broking Ltd said, ‘’As the countdown to the election results begins, we anticipate continued market volatility. We see immediate support for the Nifty at 22,400; a break below this level could intensify downward pressure.”
‘’On the upside, a rebound might be capped in the 22,800-22,900 zone. Given these conditions, we maintain a cautious outlook and recommend closely monitoring leveraged positions,” added Mishra.
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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