ICICI Direct - Derivatives Monthly Outlook - If risk sentiment improves, Nifty upsides may remerge above 14850-14950

The pessimistic tone that was seen during the March series is missing in the current series. In the April series, Call writers were reluctant to short any near the money Calls and marginal OI can be seen at 14500, 14800 and 15000. Similarly, in the weekly expiry, said strikes are witnessing additions. We believe that a sustainable up move may re-emerge if the Nifty moves above 14800. Otherwise, Nifty the may consolidate with a positive bias with stiff resistance of 14800-14900.

The open interest in the Nifty has declined marginally compared to the last month's OI at inception. The April series is starting with open interest close to 8.9 million vs. 9.59 million shares seen in the last series. Nifty April futures added almost 1.8 million shares during settlement trade. Moreover, the roll spread has increased significantly further and Nifty April futures ended with premium of more than 100 points, which remains a worry for upsides.

Positional support for Nifty at 14000/13600

On the lower side, major options concentration is seen at the 14000 Put strike in weekly and monthly expiry. Decline towards these zone is still a buying opportunity. Hence, we believe the Nifty should not move below 13900 in case of further declines.

While the index may witness some consolidation after the sharp up move in the past one year, broader markets are likely to continue their performance in the near term while stock specific moves are likely to remain in the limelight.

Bank Nifty: Likely to perform in line with market...

After witnessing sharp upsides in the last couple of months, the banking index witnessed some cool-off as it declined almost 13% from highs. However, before that it saw a sharp up move of more than 25% post Budget in February. Most sectoral heavyweights have remained under continued selling pressure throughout the series and any intermediate rise was used as a selling opportunity.

The open interest in the Bank Nifty is the highest seen in more than two years at inception of the April series with more than 2 million shares. High roll spread amid continued decline in the index suggesting formation of short positions. We believe until we do not witness any major closure, the banking index will remain under pressure in the coming series as well.

Monthly Quant Pick

Recommendation

Buy Larsen & Toubro in range of Rs. 1360-1380

Target: Rs. 1545

Stop Loss: Rs. 1280

Time frame: One month

Rationale

With the recent recovery in cement stocks, we expect buying to be witnessed in the infrastructure sector as well. Heavyweight like Larsen & Toubro (L&T) have corrected 15% from their recent peak of Rs. 1600. Currently, it is trading near its strong support of Rs. 13600. We feel it may find fresh momentum in coming weeks.

The open interest in the stock has remained unchanged despite the recent profit booking seen in the market suggesting no fresh short accumulation was seen. Moreover, the leverage positions in the stock seems to be on the lower side and likely to insulate the stock in the ongoing market volatility. With stability, we expect fresh accumulation to be seen, which should take it higher in the coming sessions.

For details, click on the link below: https://www.icicidirect.com/mailimages/ICICIdirect_MonthlyTrend.pdf

Source : Equity Bulls

Keywords