Monthly Derivatives Selling pressure may continue till Nifty doesnt surpass 5840On downsides some recovery may

be seen from 5680

Amit Gupta Raj Deepak Singh Azeem Ahmad [email protected] [email protected] [email protected]

July 30, 2013

Nifty positional support placed at 5680. consolidation in short-term expected in the range of 56806040 Looking at the options base for the August series, immediate and major support for the index lies at 5700, which is the highest Put base for the series. Thus, a decline towards these levels can be utilised as a buying opportunity On the Call side, writing is seen at 6000 at an average premium of | 40, suggesting 6040 could act a a key trigger for the next up move Current Nifty premium of 42 points is the highest premium level since January 2013. The elevated reading could be partly explained by a longer August expiry and rising 10 year G-sec yields. However, historically, sustainability of this high level of premium has not boded well for a market up move. In February 2012, the Nifty traded at a abnormal premium of 60 points post which it came down to 5200 (from 5630). In January 2013 also, the Nifty premium stayed at elevated levels and selling pressure was witnessed after some consolidation towards 5700
140000 120000 100000 80000 60000 40000 20000 0 5400 5500 5600 5700 5800 5900 6000 6100 6200 Option open interest for August Series Put OI Call OI

OI (No. of Contracts)

Bank Nifty: Likely to slip towards 10000 levels Deal Team At Your Service
Looking at the options build-up, 10000 Put has the highest open interest base. We believe the banking index may eventually slip towards 1000. In such a scenario, private banking stocks could continue to witness selling pressure. In addition, the highest Call build-up is seen in strikes range from 10800-11000, which would remain a major resistance zone on upsides Banks continued to reel under pressure and the Bank Nifty/Nifty price ratio came down to 1.5 year low of 1.76. The Bank Nifty continued to underperform the Nifty in the current month

25000 20000 OI (No. of Contracts) 15000 10000 5000 0 10000 10100

Bank Nifty open interest for Aug Series Put OI Call OI

10200

10300

10400

10500

10600

10700

10800

10900

11000

11100

Short-term outlook : FIIs maintain cautious undertone : Bought index option to hedge long Deal Team At Your index futures positions. Cash Service segment selling continues for second month
FIIs have remained net buyers in the index futures segment throughout the last settlement week and the open interest in the index futures space increased gradually to 18 million shares, which is one of the highest open interest seen since September 2012. Hence, positive bias should be maintained in the index till we do not see closure of open interest from FIIs in the index futures segment. In the index option space ahead of RBI Policy review and FOMC rate Decision, FIIs bought over | 3500 crore in the cash segment. This could be the hedging of long index futures positions. In the cash segment, FIIs muted stance continues for the second month on the trot. Till July 26, 2013, they have sold over | 6400 crore in the cash segment for July. However, this outflow has been a gradual one. A key trigger in this regard, could be the action of the US Fed. Any news suggesting tapering of QE, is likely to push outflows from EMs In the Asian emerging markets, FIIs action was muted. Only in Taiwan , they bought in excess of US$2.4 billion. In India and Indonesia, they were net sellers to the tune of US$1 billion and US$0.4 billion, respectively FIIs cash activity in 2013 (In Rs Cr.)
25000 20000 15000 10000 5000 0 -5000 -10000 -15000 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13

22230

22123 10399 6407

20678

-10529

-6394

FIIs cash activity in select Asian economies (In US $bn)

2500 2000 1500 1000

2423

500 0 -500 -1000 Taiwan

643

92

173 -410 -1066

South Korea

Thailand

Philippines

Indonesia

India

Domestic stock markets outperform BRICS and MSCI Emerging markets in trailing 12 month Deal At Your Service period. Team This has happened despite INR being worst performing currency !
Trail 12 M Equity Market Return of BRICS & MSCI Emerging Market

If one looks at the trailing 12 month performance of BRIC economies and the MSCI Emerging Market index vs. India, then domestic equities have outperformed. Where the domestic markets have delivered a return of over 13.2%, MSCI emerging markets have delivered a return of 1.3%. Brazil and China have given negative returns of -13.7% and -4.7%, respectively

15 10 5 0 -5 -10 -15 -20 India MSCI Emerging Market Index Russia China Brazil 13.2 1.3 -1.8 -4.7 -13.7

Trailing 12 M Currency Market moves

%C hg in currency V s. US $

The more spectacular thing about domestic equities is that despite US$INR seeing a sharp weakness trend in the current calendar year, domestic equity indices have held on to the gains. As is visible in the chart, the Indian currency weakened by 7% while the Brazilian Real weakened by over 11%

6 4 2 0 -2 -4 -6 -8 -10 -12 India Russia China Brazil -7 -11 -2 4

India VIX : IndiaVIX likely to remain elevated in range of 17-20

Near the July expiry, the volatility index (India VIX) cooled off closed to 20% to 16.18 despite profit booking seen in Nifty. However, post expiry India VIX, has again started to move up on the back up index option buying by FIIs. In the last couple of sessions itself, they have bought over | 3500 crore Looking ahead, the 50 DMA is 18.3, the key level for the index. A move above this level is likely to increase the intraday gyrations on the Nifty

Deal Team Positional Recommendations At Your Service

1) HDFC (Buy) Buy HDFC in Cash in the range of 811-827. Target 910 SL 770. Rationale: After witnessing initial long closure near 890-900, HDFC witnessed some selling pressure and on the result day tested June lows. Since then, the stock has managed to sustain above the lows of 790 and the open interest is also indicating towards short covering. Near the expiry, the delivery pick-up is seen in the range of 780-800. Till these levels are held, the stock is likely to attract some closure of short positions, which can push the stock higher 2) Dabur (Buy) Buy Dabur in cash in the range of 156-160. Target 180 SL 148. Rationale: After consolidating in the range of 120-135 levels within October 2012-March 2013, Dabur surpassed this range and moved over 20% to make lifetime highs of 178. In the last few weeks, the stock has witnessed profit booking from 178 levels. This profit booking has flushed momentum longs out of the stock and the open interest has come down by 40% to almost the level seen in June series. Moreover, this view of lower leverage in the stock is re-affirmed by the lower rollover into the August series as long traders had started to come out of this stock. Since the start of the series, the stock has picked up delivery volumes and the low leverage in the futures segment ensures the upsides will resume. Key support is at 148, where the stock has found support on numerous occasions

Deal Team Positional Recommendations At Your Service

4) Bhel (Sell) Bear Put Spread Buy Bhel Aug ust155 Put at | 5.5- 5.8 and Sell Bhel August 145 Put at | 2.5-3. Rationale:

Capital goods heavyweights have seen a severe selling pressure post the current quarter numbers. Bhel, in particular, has underperformed its peers and despite positive momentum seen in the broader markets, it failed to surpass its crucial resistance level of 198. At the same time, high rollover suggests short positions are still intact in the stock. We expect the stock to witness another round of selling pressure and it may test 145 on downsides. Hence, we recommend a bear Put strategy in the stock at current prices. 5) Hindalco (Sell)- Covered Put Strategy Short Hindalco August Future at 89.4-89.8 and sell Hindalco August 90 Put at 5.0-5.3. Exit the strategy if the stock comes above 95 (future level)
Rationale:

After outperforming the rest of the metal space, since March, Hindalco observed volume based selling pressure in the last few sessions and breached its previous lows of 90. In addition, the stock has observed addition of more than 20% open interest in just the last two sessions clearly suggesting fresh short accumulation. We believe selling may continue in the stock in the near term and the higher levels of 95 would act as resistance levels

Forthcoming Events Triggers Deal Team Atand Your Service

India: 01 Aug: HSBC PMI Manufacturing 09-12 Aug : India local Car Sales 12 Aug : Industrial Production & CPI 14 Aug : Monthly Wholesale Prices 30 Aug : GDP (YoY) US: 02 Aug : Unemployment rate 08 Aug : Initial Jobless Claims 15 Aug : Industrial Production 21 Aug : Fed releases minutes of Jul 30-31 meeting 29 Aug : GDP annualised QoQ Euro zone: 01 Aug : ECB announces interest rates 14 Aug : GDP (QoQ) 22 Aug : PMI (Services & Manufacturing) Japan: 08 Aug : Bank of Japan Monetary Policy statement 30 Aug : Industrial production China: 09 Aug : Industrial production 22 Aug : HSBC Manufacturing PMI

Pankaj Pandey

Head Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road no.7, MIDC Andheri (East) Mumbai 400 093 [email protected]

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