DERIVATIVES WEEKLY VIEW: FOR WEEK STARTING MARCH 6, 2023

Short covering move likely to extend beyond 17,800 in Nifty and towards 42,000 levels in Banknifty respectively

Nifty  

• Broader markets recovered swiftly in the last session and the Nifty closed the week tad below 17,600 levels gaining almost 300 points in a single session.

a)BFSI was the major driver of the move while pharma and technology space remained laggard.

b)At the same time, broader markets have outperformed significantly as midcap and small cap indices gained over 1.5% and 1.3%, respectively, against 0.75% gains seen in Nifty.

c) Going ahead, we believe the current short covering move may extend further towards 17,800 levels as the first hurdle.

• The recent sell-off in the February series saw significant additions in the index futures segment.

a)  FIIs are now net short of 1.3 lakh contracts. Lately, such quantum had been seen in June 2022.

b) In the past, we have seen whenever net short contract reach near such highs, short covering move was experienced and we believe we have already witnessed the first round of move on Friday’s session.

• The Nifty current weekly Call base and Put base started with 17,400 strike. However, Friday’s move has forced Call writers to close their positions and Put bases have strengthened significantly which indicates expectations of limited downsides in coming week. Hence, in case of any pullback towards 17,450 levels will remains buying opportunity.

• From a volatility perspective, despite global jitters we didn’t see volatility to cross 15 levels. At the same time, sharp appreciation in INR against Dollar should also support the markets. Hence, we believe the Nifty is trying to form some base near 17,300-17,400. Sectorally, we feel BSFI and Consumptions stocks will be on focus on the back of short covering.

Banknifty

Banknifty did well throughout the last week and managed to outperform. The Bank Nifty gained more than 3% last week and managed to surpass its notable Call OI base of 41,000. Moreover, participation was seen from both private sector as well as PSU banks.

• The open interest in the Bank Nifty has reduced sharply by 10% during the week along with the positive price clearly indicating short covering move.

a) Banknifty has managed to move above its February series VWAP of 41,100 levels. We believe that with recent outperformance, Bank Nifty is likely to continue it short covering move till 42,000 levels in the coming weeks.

• We saw further Put writing at OTM as well as ATM Put strikes. Even ATM Put of 41,000 strike saw addition of more than 1 lac contracts ( provisional) suggesting expectations of limited downsides.

a) From a support perspective, intermediate support for the week can be expected near 40,800 levels and dips towards this levels remains a buying opportunity.

Weekly Future recommendations:

 1. Kotak Mahindra Bank (Buy)

Buy range: 1,750-1,760

Target: 1,825

Stoploss: 1,709

Rationale:

• Kotak Mahindra Bank has seen aggressive short build-up in the last three month and the open interest as reached to life high levels. However over the past few days, the stock is witnessing short covering move and we expect it to extend going forward.
• On the options front, stock closed above its second highest Call base of 1,740 which should further exaggerate the current short covering move. With banking stocks back in focus and the stock giving close above its sizeable Call base, we believe Kotak Mahindra Bank is likely to test Rs 1825 level in the coming sessions.

 2.  Astral Limited (Sell)

Buy range: 1,885-1,895

Target: 1,750

Stoploss: 1,971

• Astral had been consolidating in the broader range of Rs 1,900-2,100 over the past few months. However, last week the stock failed to sustain above its support levels and gave lowest weekly close since October 2022.
• On the derivatives fronts, the stock open interest has been continuously rising since last six months and March has started the series with one of the highest OI. We believe that short bias is still intact in the stock.
• The stock has closed below its second highest Put base of Rs 1,900 which is likely to trigger further selling pressure. Hence, we expect the stock to test Rs 1,750 in the coming sessions.

Source: ICICIdirect Research

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.