Weekly view:

Nifty likely to trade in range of 6600-6800

Amit Gupta amit.gup@icicisecurities.com
Azeem Ahmad azeem.ahmad@icicisecurities.com
Raj Deepak Singh rajdeepak.singh@icicisecurities.com
May 2, 2014
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Deal Team At Your Service
UltraTech Cement (ULTCEM)
Buy ULTCEM May futures at | 2040-2055, Target Price | 2220 Stop loss | 1950.
Rationale:
Cement stocks were the first ones to see the long liquidation since the middle of the April series. Most stocks have
fallen almost 10% on the back of the same. UltraTech Cement also falls under the category wherein the OI has come
down over 33% to 6450 contracts along with a decline of 10% in the stock. However, as the stock has come closer to
its March break out level of | 2030, it has witnessed fresh buying interest emerging. Since the start of the series, there
has been a pick-up in delivery volumes, suggesting some value buy positions. Thus, there is an anticipation of a
trading bounce in the stock towards | 2200 levels.
IndusInd Bank (INDBA)
Sell INDBA May futures at | 486-490, Target Price | 440, Stop loss | 510
Rationale:
Since the start of series, we are seeing long liquidation theme among most high beta stocks. IndusInd saw strong
rollover of long positions and, as a result, was high on leverage. Due to ongoing closure before election verdict on
May 16, 2014, stocks like IndusInd Bank may head further lower due to these positions. Recently also, despite many
attempts the stock was unable to take out its May 2013 highs. We believe it could fall towards
| 430, where there is convergence of 100 & 200 DMA. On the higher side, May 2013 highs of | 530 remain the key
resistance
Weekly Recommendations
Last week recommendations follow up
Date Underlying View Strategy Reco Target SL Profit/Loss Comment
25-Apr-14 HCLTEC Bullish Buy Future 1450 1402 1402 -12000 SL triggered
25-Apr-14 PUNBAN Bearish Sell Future 800 755 828 6500 Profits booked
The Week Gone By
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Deal Team At Your Service
As expected, the Nifty witnessed selling pressure among high beta names throughout the week and major
weakness was observed among banking and metal stocks. The Nifty lost almost 1% during the week
After remaining sideways in the second half of the April series, the volatility index started witnessing some
up move in the last couple of sessions. Due to the upcoming election results on May 16, we do not expect
volatility to decline from here onwards
The advance decline ratio has remained in favour of declines in the truncated last week due to profit booking
seen at higher levels. Midcap and small cap stocks were the major losers of last week
During the week, major gainers in the Nifty were Dr Reddys (6.7%), Tech Mahindra (4.1%), HDFC Ltd
(3.6%), Lupin (2.4%) and M&M (1.8%)
On the other hand, the Niftys major losers of the week were Jindal Steel (-12.8%), Hindalco (-9.3%), Tata
Steel (-8.6%) and DLF Ltd (-8.3%)
As expected, profit booking observed in run up to election verdict
Nifty highlights
Week on week Spot Fut COC(%) Tot Fut OI PCR OI PCR Vol ATM IV (%)
Current 6695 6727 6.4 14485900 0.86 1.00 28.4
Previous 6783 6826 6.9 15521300 1.16 1.06 28.0
Change (%) (1.3) (1.5) - (6.7) - - -
Outlook for coming week
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Any sustainable short covering can be seen only above 5530. On downsides,
selling pressure may aggravate below 5350 .
Level of 6800 remains crucial resistance for next week
Looking at the options build-up, the highest option base is at 7000 Call strike of 4 million shares. On the lower
side, the highest option base is placed at 6500 Put strikes. Interestingly, IVs at OTM strikes have increased
sharply in the last couple of sessions indicating accumulation of long Vega positions for the elections.
In the upcoming week, the support for the Nifty is placed at 6630, which is the mean-2 sigma level. From the
options segment also, the highest Put base placed at 6500 makes it an important support for the Nifty
Last weeks average price for the Nifty is placed at 6750 and immediate resistance can be expected in the
Nifty towards these levels. Moreover, extension of the current profit booking trend may continue till the Nifty
does not sustain above these levels
The open interest in Nifty futures was relatively lower compare to the open interest seen in the last couple of
months at the time of inception. Low open interest in Nifty futures may be indicative of caution prior to the
major event in terms of directional play
Option base widely spread out
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Deal Team At Your Service
As mentioned in the last report, profit booking exercise was witnessed in most banking stocks from the all-
time high levels of 13300. Midcap banking stocks were primary laggards during the week. Moreover, below
par results from heavyweights also did not help in the recovery
The Bank Nifty/Nifty alpha trade has been a directional up move since the time the Nifty bottomed out on
February 13, 2014. However, in the recent past, the price ratio (Bank Nifty/ Nifty) has come down from over
1% from highs of 1.935. We believe this trend of underperformance from Bank Nifty could continue for
some more time and head towards its immediate support of 1.90
Looking at the options build-up, the highest Put base is at 13000. We expect sustainability below 13000 to
trigger further selling pressure in the banking index. Fresh positive bias may be seen if the Bank Nifty
moves above 13000
Bank Nifty : Fresh positive momentum likely only above 13000
Bank Nifty options build up
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Deal Team At Your Service
In the truncated week, FIIs continued with their tepid buying. In the last four trading session, they bought
close to US$192 million in cash. However, DIIs sold over US$220 million, making flows in the market
negative. The result of the same is reflected in the Nifty, which is down 3% in this time from record highs of
6870
The current leg of long liquidation in most sectors is prompting FIIs to continue to hedge their cash buying
via Index option buying. This week they bought options over US$212 million. The trend of long liquidation
from FIIs is also visible in stock futures, where they liquidated over US$160 million in the last four trading
sessions
The one year high premium of 58 points (non-expiry day) on the Nifty on April 28, prompted creation of
arbitrage. The same is getting reflected in the FII index shorting of over US$300 million and delivery pick-up
in index heavyweight stocks on April 28, 2014
In the secondary debt market as well, FIIs withdrew over US$384 million. The withdrawal in debt and tepid
inflows in equity has also put the INR in an upward trajectory towards | 61
FII flows (Equity + Debt) in April negative: resulting Nifty to close flat for month
FII & DII inflows
* FII and DIIs net figure is in million USD as per provisional data
Date Index Fut Stock Fut Index Opt Cash Cash
25-Apr -154.87 -38.90 211.38 42.74 -69
28-Apr -39.54 -17.09 89.72 24.59 -62
29-Apr -71.05 -114.75 -71.89 125.45 -92
30-Apr -44.38 8.43 -17.39 NA 1
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Deal Team At Your Service
S&P 500: Consolidation continues near record highs
The S&P Index hovered in a narrow range of 1850-
1890 last week and tried to conquer the highest Call
base placed at 1900 strike. Earlier also, despite many
attempts, the S&P was unable to move above 1900.
Hence, fresh buoyancy in the S&P may be witnessed
once it surpasses this level. On the lower side, 1850
remains an important support for the equity index.
Along with the highest Put base, both the 50 and 100
DMA levels are placed in the vicinity of 1850, which is
likely to lend supportive action.
Dax: Underperformance likely to continue: Despite the
recovery seen last week, the German index once again
failed to sustain above its previous highs of 9650. The
highest Call base for the index is placed at 9800 Call
strike, which suggests selling pressure may come into
the picture once again at higher levels. Hence, we
expect the underperformance to continue in the Dax
till it does not sustain above 9700. Both 50 and 100
DMA for the index are placed in the vicinity of 9450
levels, below which selling pressure may aggravate
S&P : Consolidation continues near record highs
Dax Index
S&P Index
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Deal Team At Your Service
Stock Current OI CMP % Chg in OI % Chg in price
Petronet LNG 906 146.1 49.75% 3.03%
ONGC 8374 330.15 2.21% 2.12%
HDFC 24505 912.65 13.40% 1.36%
Andhra Bank 1751 67.15 12.60% 1.59%
Auro Pharma 36246 605.35 4.88% 3.36%
Stock Current OI CMP % Chg in OI % Chg in price
TATA Steel 14435 394.4 33.31% -8.43%
Jindal Steel 8656 242.95 25.56% -12.59%
Reliance Ind 52104 929.45 11.89% -2.10%
NTPC 16185 115.25 11.15% -3.84%
Bajaj Auto 7365 1920 10.70% -4.42%
Stock Current OI CMP % Chg in OI % Chg in price
ACC 3309 1289.1 -9.37% -2.08%
Zee Ltd 4853 268 -4.82% -0.81%
Maruti 22395 1896 -5.33% -3.69%
Axis Bank 18520 1537.7 -3.83% -0.24%
Coal India 6311 296.2 -2.59% -2.12%
Stock Futures Scanner .
Long build-up
Long closure Short covering
Short build-up
Stock Current OI CMP % Chg in OI % Chg in price
Wipro 14935 531.5 -11.25% 1.38%
BPCL 6622 466.55 -13.39% 0.42%
UPL Ltd 5251 278 -15.93% 19.49%
Dr Reddy 7013 2757.1 -17.31% 4.09%
Tech Mahindra 22740 1848 -6.59% 1.64%
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Deal Team At Your Service
Stock Expiry Strike OI in Contract % Chg in OI Stock Expiry Strike OI in Contract % Chg in OI
SBIN 29-May 2100 2794 96.2 SBIN 29-May 1800 871 105.4
AXISBANK 29-May 1600 1539 147.4 DLF 29-May 130 322 203.8
MCDOWELL-N 29-May 2800 1638 41.7 RELIANCE 29-May 880 347 123.9
DLF 29-May 150 576 271.6 LT 29-May 1220 215 616.7
RELIANCE 29-May 940 992 66.2 MCDOWELL-N 29-May 2600 918 23.2
OI additions
Calls Puts
Stock options OI activity .
Top liquid stock options
Stock Expiry Strike OI in Contract % Chg in OI Stock Expiry Strike OI in Contract % Chg in OI
SBIN 29-May 2200 1162 -11.6 HDFC 29-May 840 283 -38.6
RELINFRA 29-May 550 301 -31.1 MARUTI 29-May 1900 221 -40.3
HDFC 29-May 920 164 -45.3 RELINFRA 29-May 530 135 -37.5
RELIANCE 29-May 1000 3909 -3.3 DLF 29-May 155 156 -34.2
AUROPHARMA 29-May 600 988 -9.3 RELCAPITAL 29-May 350 187 -47.3
OI Closures
Calls Puts
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Global Events and Triggers for the coming week
India:
05 May : Quarterly result of Canara Bank
06 May : Quarterly result of Titan & HDFC Ltd
06 May : HSBC Service & Composite PMI
07 May : Quarterly result of Lupin
09 May : Import & Export Data YoY
09 May : Quarterly result of NTPC & PNB
US:
05 May : PMI Services & Composite
06 May : Trade Balance
07 May : MBA Mortgage Application
08 May : Initial Jobless Claims
Euro zone:
05 May : PPI
06 May : Services and Composite PMI
08 May : ECB Announces Interest rates
Japan:
07 May : Services and Composite PMI
China:
05 May : Manufacturing PMI
07 May : Services and Composite PMI
08 May : Trade Balance
09 May : PPI & CPI
UK:
06 May : PMI Services & Composite
08 May : BOE Bank Rate
09 May : Industrial & Manufacturing Production
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Portfolio allocation in Derivatives products
Trading Portfolio allocation
It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives
research products.
Please avoid allocating the entire trading corpus to a single stock or a single product segment.
Within each product segment it is advisable to allocate equal amount to each recommendation.
For example: The Daily Derivatives product carries 2 intraday recommendations. It is advisable to allocate equal
amount to each recommendation
Product wise Max allocation Frontline Mid-cap
allocation per stock Stocks stocks
Daily Derivatives 5% 2-3% 2 Stocks 1% 2-3% Intraday
Weekly Derivatives 10% 3-5% 2 Stocks 3-5% 5-7% 1 Week
High OI stock 5% 2-3% 2-3 Stocks 5-7% 7-10% 1-2 Weeks
Monthly Derivatives 15% 3-5% 4-7 Stocks 7-10% 10-15% 1 Month
Global Derivatives 5% 2-3% 1-2 index strategy - - 1 Month
Stock Trader/ Stock in Focus 15% 2-3% 5-6 Stocks 7-10% 10-15% 3 Months
Alpha Trader 5% 2-3% 2-3 Alpha strategy 5% - 3 Months
Volatility Insights 5% 2-3% 1-2 Strategy 8-10% 10-15% 1-2 Month
ArbitrageOpportunity 5% 2-3% 2-3 Stocks > 2.5% >2.5% Event Based
Positional / Daily Futures 10% 2-3% 8-12 Stocks 1-3% 2-5% 1-14 days
Index option & Strategy 10% 3-4% 2-5 Nifty 2-3% - 1-14 days
Stock option & Strategy 5% 3-4% 2-8 Stocks - 3-5% 1-14 days
Currency Futures 5% 3-4% 3-5 Calls - - Intraday
Duration Products
Allocation
Number of Calls
Return Objective
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Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1
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Floor, Akruti Trade Centre,
Road no.7, MIDC
Andheri (East)
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research@icicidirect.com
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