Sailav Kaji

The Nifty started the expiry week on a positive note, backed by stability in global markets.

The Nifty March futures were trading in discounts.

This, along with falling open interests (OIs), indicates shorts getting covered. The Nifty thereby formed a classic bottom and bounced back with vigour. The calender spread, which gives a picture of the medium-term trend, had also turned positive (after 3-4 expiries), indicating a clear trend reversal.

Both the March (current) and the April (near) month Nifty futures had started trading into premium, indicating that the rollovers were mainly on the long side and the bears had started covering their shorts in the current month itself.

This promises bright future for the markets in the April expiry.

The short covering was mainly triggered by spot-market buying in the private banking, FMCG, IT and the real-estate sectors.

The stocks futures in these sectors were trading in discounts (negative cost of carry) during most of March but in the last week, the cost of carry had turned positive. This indicates bottoming out in those stocks.

Another index major, which resulted in strong upmove in Nifty,was ONGC,which was up over 6% for the week. The stock witnessed huge long positions getting built (The OI was up over 20% for the week).

The marketwide rollovers were lesser compared with last expiry. The Nifty rollovers were barely around 62% indicating that the bears had left their positions to expire. Cost of carry in many stocks had improved by expiry also indicating optimism coming back into the markets.

Going forward, we believe that Nifty has a strong upside in the April expiry. The dependency on the global market would still exist but one can say that the Indian markets have bottomed out around 4500 levels.

However, for the week ahead, Nifty might face some resistance around 5000 levels because of call writing. On the downside strong support might emerge around 4750 to 4800. On the stocks front, IT majors like Infosys and Satyam Computer might continue to see upside moves as long buildups have been witnessed in those stocks.We also believe that metal stocks like Tata Steel and Hindalco also might witness some longs getting built.

Short covering can be expected in capital goods stocks like Bhel, BEL and BEML.

The author is head, derivatives and strategy, PINC Research

Source : DNA