F&O Rollover: FIIs bullish on index in July series with net longs; what's in store for Nifty?

Vis-a-vis the May series when the rollovers stood at 71.8%, it was 76% in the June series, a report by Motilal Oswal said. It is not just higher from its quarterly average, but is up from the four-month average as well, this report said.

The June series, laden with high volatility, witnessed multiple high profile events including the Indian general election results, Reserve Bank of India (RBI) monetary policy and Fed FOMC.

Notwithstanding this, the 50-stock index soared nearly 7%, settling at 24,045 on the monthly expiry day while the Nifty Bank was up 8.5%, closing at 52,811. The midcap and smallcap indices closed with gains of 7.8% and 9.3%, respectively, the Nuvama note stated.

"Nifty formed a strong bullish candle on expiry-to-expiry basis and has been making higher highs for the last eight series. The June series witnessed an addition in open interest by 4.9% with a rise in price by 6.9% on an expiry-to-expiry basis, which indicates the build-up of a long position in the index," MOFSL said.

Sectoral set-up

In the June series, the sectoral indices which gained the most were Realty Index (up 10.3%), IT Index (up 10.1%), Private Bank Index (up 9.5%), Financial Services Index (up 9.4%), Auto Index (up 7.3%), Media Index (up 5.2%), FMCG Index (up 4.4%), Energy Index (up 3.4%), Pharma Index (up 2.9%) and Metals Index (up 2.3%). While the Index (up 0.1%) settled flat.

Sector-specific rollover action

At the start of July series meaningful OI addition is seen in the auto sector at Rs 31,800 crore on the long side. Meanwhile OI on the long side for infra, energy, telecom, IT and consumer durables sectors stand at Rs 22,500 crore, Rs 11,000 crore, Rs 19,300 crore, Rs 30,200 crore and Rs 5,300 crore, respectively.

Outlook

Motilal expects the positive trajectory to continue in Nifty in the July series. The index has to hold above 23,750 for an upward move towards 24,500 and then 25,000. The supports are placed at 23,500 then 23,000 zones. The buying interest is visible in most of the sectoral indices and mainly in banking, auto, metal, realty and IT sector.

Meanwhile, Nuvama highlighted July as historically being a month for bulls with Nifty settling in the green 90% of the time over the past 10 years, averaging 3.5% returns. "We expect this bullish momentum to continue, as there are still no signs of exhaustion," it said, estimating Nifty to touch the 24,500 mark in the next few days, with strong support coming from private banks and IT.

Stock in focus

should gain more steam as the June shareholding will be released soon, Nuvama said. If FIIs reduce their stake from 55.5% to below 55%, then in the MSCI August 13 review, one could see MSCI increasing the weight of HDFC Bank from 4% to 8% in the EM Index. This step could lead to an inflow of $4 billion.

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