Nifty likely to head lower towards 4830

The tone for the series was set by aggressive short rolls at very subdued roll costs during July expiry which had very clearly implied a bearish undertone. Since then, the market has lost close to 8% in this series with a 30% jump in Nifty futures positions.

This, coupled with a massive jump in implied volatilities to over 35% levels, sums up the market sentiment aptly. The silver lining is that incremental shorting by FIIs in index futures has declined considerably in the past few trading sessions.

The put-call ratio (PCR) readings are extremely low which along with the technical set-up point to short-term oversold conditions. Options data, too, implies some near-term support at 5000 levels. All this indicates that a short-term bounce in the markets cannot be ruled out.

The bottomline, however, is that the huge bouts of volatility seen of late indicate that we are far from stability and that, in all likelihood, markets will continue to witness high volatility levels, thanks to volatility clustering.

And markets forming bottoms without a subsiding of the volatility levels is highly suspect. Any short-term bounces are likely to die down in the 5220-5330 range followed by subsequent selling pressure. We think Nifty eventually should head lower towards 4830 levels. Bharti appears one of the better stocks with risk-reward in favour of longs.

The stock also looks attractive on a relative basis against Idea from a statistical standpoint.