F&O Tracker: Watch out for BankNifty & FII cash market data

Siddarth Bhamre, AngelBroking

After RBI cut interest rates by 50 bps on September 29, 2015, Nifty has gone up by around 300 points. Higher denomination index BankNifty going up by 200 points clearly reflects underperformance by the most favoured sector of the market. It's defensive and brutally bitten-down names which took markets higher post the monetary policy. This is not a very encouraging sign.

If we look at FII index futures data they have been buying index futures in decent quantity with a rise in open interest, indicating formation of fresh long positions. However barring a day, they haven't been buying in the cash market segment.

We haven't witnessed significant decline in implied volatility despite the market bouncing back which suggests some cautiousness to be still there. Chinese markets opened after many days which opened the gap up 3 per cent but didn't see any buying, nor meaningful selling thereafter.

Above data points are giving conflicting signals with FIIs going long on index futures which is a positive sign while underperformance of BankNifty is a cause of concern. We believe that traders will take cues for the direction of the market and should keep a close eye on private sector banking space which is appearing weak.

Despite this bounce-back from lower levels, we believe that as of now the uptrend has still not resumed but FIIs going long on index futures has lowered our negative bias and hence we remain light on market and will keep a close eye on BankNifty.