#39;Nifty consolidation to go into May series expiry week; Bank Nifty will continue to underperform#39;

May 22
14:28 2020

Navneet Daga

The Nifty consolidated last week and traded in a broader range of 300 points from 8,850 to 9,150 on Nifty futures.

A large correction was seen in the Bank Nifty which was down 6.2 percent against a fall of 0.7 percent in the Nifty for the week.

The Nifty failed to sustain above the morning highs above 9,150 as banking stocks dragged lower in the second half on the weekly expiry.

After the 11 percent price correction from the last day of April series, a hint of short-covering was seen from the lows near 8,800 as FIIs’ derivatives statistics indicate short-covering at lower levels.

FIIs’ derivatives statistics

A shift in sentiments seen from FIIs’ positioning on the index futures, as long and short ratio improved from 0.39 times to 0.96 times, while relentless selling continued in cash markets.

On an aggregate basis, from the previous weekly expiry day (May 14) FII participants added stock futures long positions along with index call buying and put selling, implying dips in near term likely to be bought.

India VIX cooled down by nearly 13 percent to 32 levels on a weekly basis.

Global CBOE VIX traded near 30 while it remained stubborn on falling below the mark, suggesting whipsaw moves were likely to make a comeback for global equities.

We expect India VIX to find support in the range of 30-32, however, higher volatility on Financials and auto remained in thick of trading action among participants.

On the options front, buildup on strikes remained scattered on calls while larger concentration on the downside was seen at 9,000 strike puts on the Nifty for monthly (May 28 series) holding about 32 lakh shares in open interest, indicating traders were likely to defend 9k mark on a closing basis for the May series.

The Nifty traded with a pivot of 9k strike, call writing activity on OTM strike at 9,200 to 9,400 implying limited upside.

The options data indicates an immediate trading range between 9,000 and 9,200 for the coming week.

The Bank Nifty moves are the joker in the pack as a sharp contraction was seen during the week, as traders continued short buildup on private banks and heavyweight financial stocks.

The Bank Nifty is likely to find a hurdle on the upside near the 18,200-mark, while on the downside, major support emerges near 17k. Traders using every rise on the upside to creating short in Bank Nifty, trend reversal only seen on sustaining above 18k mark for the Index.


We expect pharma to continue its upward momentum as the ratio of the Nifty Pharma/the Nifty has regained lost ground, suggesting a resumption of outperformance of pharma stocks.

Stocks such as Lupin and Auropharma that saw a long buildup along with price breakout are likely to gains traction in the coming week.

FMCG and defense stocks made a sharp comeback, as ITC gained about 14.5 percent from the last week with a massive OI and volume buildup.

Banking stocks remained weak, with Kotak adding significant short OI buildup as traders continued to short at higher levels.

Expiry week

Global news, fund flows along with rollovers data will likely dictate near- term moves for the Nifty. Traders will largely focus on sector-rotation theme in the near term.

(The author is Senior Derivatives Analyst – Institutional Equities, YES Securities)

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