K.S. Badri Narayanan

THIS week marked the end of Samvat 2060 while the New Year (Samvat 2061) ushered in on firm note with the BSE Sensex breaching the 6000-mark on Friday.

However, trading activity was low with daily average turnover last week clocking Rs 6,016 crore against the previous week's figure of Rs 7,589 crore on the NSE.

Last week also saw the introduction of 1900 strikes on Nifty, which evoked an immediate attention by adding about 290 contracts (both on puts and calls). MTNL sneaking into the active list was another highlight of the week.

The market will remain closed on Monday due to Ramzan.

Nifty outlook: Last week, we had indicated that the Nifty may open firm and might see some resistance at higher levels. Though the Nifty began on a firm note as expected, it did not see any major challenges at higher levels.

This week, we expect the Nifty to experience a correction and it may begin on a negative bias. Sentiment indicators such as implied volatility, put/call ratio and cost-of-carry point towards the likelihood of weakness in Nifty.

Volatility view: The implied volatility (IV) of Nifty calls improved marginally to 15 per cent from the previous week levels of 14 per cent and implied volatility for puts was at 19 per cent (18 per cent).

Though the firmness in puts implied volatility suggests downward bias in the Nifty, the marginal improvement in calls IV would check any sharp decline in the Nifty. Only a further gain in puts implied volatility and a fall in calls IV would ensure the weakness in Nifty.

While the 10-day historic volatility of Nifty is 9 per cent, the same on 30-day scale stood at 13 per cent. The annualised volatility on Nifty is 16.68 per cent.

Put/call ratio: While the volume-wise PCR slipped sharply to 0.65 against last week ratio of 0.83, the same on open positions basis remained firm around 1.14. This suggests that a lot of traders are keeping their puts positions open in anticipation of a correction and closed out their calls positions when the market jumped, to book profits. The firmness in PCR indicates the possibility of Nifty weakening.

Basis: The Nifty November futures, which turned into premium vis-à-vis Nifty during the previous week, are now trailing the Nifty by 3.25 points. This is bearish, as traders are not willing to pay premium to carry over their positions. Cost-of-carry also weakened a bit though it still remains in positive zone.

Index movement: Last week, the Nifty opened marginally higher at 1836.05 and then went on to register its intra-week high of 1884.65 while last week's low was 1836 points. The Nifty closed last week at 1872.95, a sharp gain 1.11 per cent over the previous week close.

Nifty futures: The Nifty November contracts closed at 1869.70, a discount of 4.25 points to the spot close of 1872.95. However, open positions improved to 54,749 contracts from last week positions of 50,009 contracts.

The Nifty December futures closed at 1868.05, a discount of 4.90 points to the Nifty spot. Open interest positions improved to 1,381 contracts (460 contracts).

Stock futures: The activity was centered on a few contracts such as Reliance, Tata Motors, Tata Steel, Satyam, SBI, Infosys, MTNL and TCS.

Open interest positions improved sharply on Canara Bank, Infosys, Hero Honda ICICI Bank and Reliance while the newly-introduced NTPC saw a sharp fall in OI positions. Apart from NTPC, contracts such as Andhra Bank, Punjab National Bank, Tata Steel, Tata Power and Cipla also shed some positions during the week.

* The discount/premium for a few stock futures turned into negative zone this week while the premium has weakened for many others.

* A few contracts such as Bajaj Auto, Bharat Electronics, ITC, Hero Honda, Satyam Computer, BPCL and Mahindra & Mahindra are trading in discount to their respective spot close.

* Futures on Ranbaxy, Grasim, ONGC, Reliance and HDFC are ruling in premium.

* Implied volatility on major index heavyweights fell for both calls and puts.

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