Nifty rally could find resistance at 8420

By Hemant Nahata

IIFL


The last five trading sessions have seen a drop in volumes in the Indian market due to year-end vacations in the US, Europe and several key markets. The derivatives and cash market volumes have almost reducedto half its yearly average. While thisis likely for most part of this week, the trend thereafter would behard to predict now.

The NiftyBank Nifty roll (December expiry), in terms of contract, matched the November series rolls despite a high roll cost (90-100bps). However, marketwide rolls stood at 84% compared with quarterly average of 85.5% as lackluster markets led to some unwinding in positions.

After falling till 8150, the Nifty again staged a bounceback and is trading near resistance levels. We maintain our view that the Nifty rally could find stiff resistance at 8420 level, beyond which Nifty might attempt to reclaim 8500-8550 levels. FIIs' long-short rolls in index futures stood at 64% and 24%, the lowest over the last one year.

In addition, FIIs had sold stocks worth $1 billion over the past 15 trading sessions. January has been mixed month over the past five years, with negative returns on three occasions indicating that a pre-Budget rally is not always a case in Indian markets. Rather, it is more of mimicking the global market at least in the initial part of the series. Any resumption of selling by FIIs could add pressure in the coming week.

On the option front, Nifty 8300 strike has maximum OI concentration of mere 60 lacs contracts, suggesting traders are unsure of the direction.The Bank Nifty, which has shown resilience over the past one month, may be one of the major indices to steer the next trend of Nifty.