Like the last series, the highest Put base of 10,600 is getting tested at the start of series itself with no major closure seen in this strike. This suggests 10,550-10,600 would remain immediate support for July series.
The Nifty constantly faced stiff resistance around 10,850. Towards expiry, selling in heavyweights triggered the Nifty to end 1.5 percent lower for the June series.
Divergence in Nifty & broader markets continued, with midcap and small cap falling 3x and 6x, respectively, compared to the Nifty.
Looking at equity flows, DII buying of well over $2 billion failed to soothe the midcap & small cap space as FIIs sold over $1 billion and pushed stocks lower.
Negative news flows was not only domestic (rupee making record lows, surpassing 68 levels) but also global (emerging market sell-off and dollar, crude up move continued during June).
Only move above 10850 to confirm Nifty upsides till 11000
Similar to the June series, the highest Nifty options build-up continues at 10,600-11,000. Highest Call base is again placed at far OTM strike of 11,000 Call with open interest (OI) also starting to build up at 10,800 Call strike. Only a move above 10,850 (key resistance level of June series) is likely to take the Nifty to 11,000.
Open interest in Nifty futures of 19 million shares (at inception of the July series) is not very high. Moreover, these positions have been formed amid subdued roll spread. This suggests that while short additions are seen in the July series, the aggression of shorts is missing. As a result, the Nifty could continue to trade in a range.
Emerging Markets (EM) equity and currency saw a sharp decline in June. This also drove the rupee to record low levels of 69. With FII fund outflows from equity and debt aggregating to over $2.6 billion in June, the rupee depreciation trend has picked up. Upsides beyond 10,850 will need abatement of EM sell-off headwinds, which is still ongoing.
With the Q1FY19 result season to commence in July, key focus will be on IT and midcap and small cap companies. A revival in earnings and guidance will be a key to trigger a reversal in fortunes of broader markets.
Why immediate support for Nifty is at 10,550
On the lower side, 10,600 Put has seen a strong OI build-up (over 4 million shares), with OI build-up seen at 10,200 Put strike as well.
Like the last series, the highest Put base of 10,600 is getting tested at the start of series itself with no major closure seen in this strike. This suggests 10,550-10,600 would remain immediate support for July series.
India VIX till now, has behaved in an orderly fashion. However, in case India VIX starts to end above 14, the risk-off sentiment could further make inroads into the Nifty as well.
EM equities continued to reel under pressure, as the turmoil in EM moved from ‘idiosyncratic’ decline to a more secular sell-off across EMs. India’s equity outperformance could also be tested if the rupee continues to make new lows and will continue to remain the main risk-off indicator.
Bank Nifty: Stiff resistance at 26800
In the May series, the Bank Nifty put up a strong outperformance trend. However, in June series, the outperformance trend eased as select bank heavyweights saw profit taking from record highs. In the end, the Bank Nifty ended 2.5 percent lower for the June series.
Since the May expiry, the Bank Nifty/Nifty price ratio has moved lower from 2.5 to 2.46 currently. It is likely to move lower towards 2.43, which is the key support zone for this ratio. Hence, weakness could persist while breach of 26,000 level is expected to enhance weakness in index heavyweights.
The Bank Nifty started the July series with high open interest amid negative rollover cost indicating rollover of short positions. These short positions are unlikely to see closure until the index takes out stiff resistance zone of 26,800-27,000.
Looking at options build-up, strong support is placed at 25,500/26,000 Put strike while on the higher side, stiff resistance may be seen near high Call base of 27,000.
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