F&O Talk| Nifty expected to continue rally, dips may provide fresh buying opportunities: Chandan Tapadia of Motilal Oswal

Nifty50, a 50-component index, ended the week near its upward moving channel. The index closed at 23,465 after making a new all-time high on Friday. Bank Nifty, on the other hand, is still in the middle of its upward moving channel, closing at 50,002.

As the indices continue to scale new highs, ETMarkets spoke to analyst Chandan Taparia, Senior VP, Equity Derivatives & Technicals, Broking & Distribution, Motilal Oswal, about his views on Nifty and Bank Nifty as well as the index strategy for the week ahead. Edited excerpts of their conversation are as follows:

The markets are moving sharply higher, recovering from the fall on the election result day. Do you expect a steady and gradual rise in the indices in the near future? Or is it likely to continue with its current upward trend?

The Nifty index has gained 4,650 points in the last nine months (recovery of 2,200 points in the month of June itself) and despite the continuous selling by FIIs, any disruptions by retail investors have been overcome. It is trading in an upward sloping channel and is expected to continue this uptrend. India VIX has cooled off substantially from its highs, which has brought relief to the overall sentiments. As of now, as long as Nifty sustains at 21,800 zone, the current momentum can extend towards 24,000-24,500 zone with good buying in many outperforming sectors.

Last week, FIIs remained net short on index futures, however, the number of contracts shorted declined. Do you think this is the time they were waiting for to come back?

The political picture in India is clear and stable after the election results and the growth story remains intact. Selling volumes have come down significantly in the last few sessions as the FIIs’ long short ratio has increased from 12.75% to 46.34% in seven sessions indicating a potential uptrend as seen historically. Volatility has fallen from its recent top of 30-31 and is now quoted below 15 sectors, FIIs usually flock back to developing markets where volatility is low with political stability, so expect them to come back soon to drive the next leg of the rally in the Indian market.

How do you view the current DII situation? Earlier, when FIIs were net short, DIIs were net long. But this week’s DII data reflects mixed sentiments. What does this mean?

DIIs are still standing net long and are supporting the market by buying continuously for the last eleven months.

What does Bank Nifty OI data indicate for the coming week?

Bank Nifty OI has increased by 18% so far in this series while the price has increased by 2%, which indicates longs are getting added to this index.

As per the technical placement, Nifty is close to the resistance of the upward channel and is also well above its moving average. Do you think now is the time when the price can bounce back from the resistance and test the average?

I don’t think the price will retrace too much from the current zones as we have already seen correction on election result day and it was bought swiftly and sensibly which clearly shows the strength and bargaining power of Indian retail and DII. I believe if by chance there is any dip then it could be the best opportunity to add more positions in Indian equity market.

If the above case is true, how can the risk of fall in prices be hedged?

In this case the probability is low but hedging can be done to avoid any unexpected eventuality. One can initiate a bear put spread keeping in mind that the next volatile trigger could be the budget session of the newly elected government.

Do you have any stock suggestions for the week ahead?

Positive outlook on capital goods (ABB, Siemens, Cumminsind), auto (M&M, Motherson, Escorts), shipping (Cochinship, Mazdock, GRSE), defence (HAL, BEL, Paras), pharma (Glenmark), consumption (Indigo, Trent, ABFRL)

Do you have any strategy or levels to play on Bank Nifty in the coming week?

Bank Nifty needs to sustain above the 50,000 zone to move towards 50,500 and then 51,000 zone, while on the other side, support is at 49,500 and then 49,000 zone.

Does PCR data indicate any situation in Nifty currently?

Nifty PCR has increased from 0.73 to 1.30 in the last nine sessions, indicating that put writers are building a base in the market.

,Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)