Nifty ends above 7600 mark on sustained FII inflows

Nifty ended in green for third straight session on sustained capital inflows by foreign funds and widespread buying by retail investors on optimism over the first Budget of the Narendra Modi-led Government. After gap up opening, nifty showed some strength in early morning trades however, it failed to breach the narrow 32-point range for most part of the day, ending the session above its crucial 7,600 mark with a gain of over three tens of a percent. Sentiments got support as business activity in Indian manufacturing sector expanded at its quickest pace since February to 51.5 in June mainly driven by higher domestic and export order flows. However, gains remained capped after output in eight important infrastructure industries, termed as the core sectors, grew at a four-month low of 2.3 per cent in May, with half of these seeing a contraction in production. Furthermore, India's fiscal deficit in the first two months of the 2014/15 financial year touched Rs 2.4 lakh crore, or 45.6% of the full-year target of Rs 5.28 lakh crore. Meanwhile, buying activity picked up in some oil marketing company stocks following a hike in petrol and diesel prices. Moreover, stocks of power, capital goods, infrastructure and banking sectors continued to remain buyers' fancy on hopes of strong reforms for these sectors in the forthcoming budget. However, information technology (IT) stocks retreated after IT research firm Gartner trimmed its worldwide IT spend growth forecast to 2.1% from 3.2% earlier.

It seemed that this week and coming week, Nifty futures may witness high volatility on optimism over the first Budget of the Narendra Modi-led Government and traders were advised to maintain proper stop-loss mechanism for trading, while investors should hedge long portfolio with options strategies. In the index option segment, maximum OI continues to be seen in the 8000-7800 calls and 7000-7300 puts indicating the trading range expectation. In today's session, the 7800, 7900 and 8000 Call strikes saw addition of 3.13, 1.59 and 2.31 lakh shares, respectively. On the other hand, 7600, 7500 and 7300 Put strikes saw addition of 2.95, 2.06 and 2.88 lakh shares, respectively.

The top gainers from the F&O Securities were Hindalco Industries, Maruti Suzuki and Dish TV India. The top losers were Union Bank of India, CESC and Allahabad Bank. Moreover, India VIX - the gauge of underlying volatility in the market – has lost its positive movement and ended in red, which indicates that traders have slowdown buying options contracts.

The India Volatility Index (VIX), a gauge for market's short term expectation of volatility decreased by 1.37% and reached 17.16. The 50-share CNX Nifty increased by 23.35 points or 0.31% to settle at 7,634.70. Nifty July 2014 futures closed at 7662.65 on Tuesday at a premium of 27.95 points over spot closing of 7,634.70, while Nifty August 2014 futures ended at 7702.45 at a premium of 67.75 points over spot closing. Nifty July futures saw contraction of 0.37 million (mn) units, taking the total outstanding open interest (OI) to 13.60 mn units. The near month derivatives contract will expire on July 31, 2014.

From the most active contracts, HDFC Bank July 2014 futures traded at a premium of 10.25 points at 834.10 compared with spot closing of 823.85. The number of contracts traded were 13,835.

Hindalco Industries July 2014 futures traded at a premium of 1.65 points at 176.80 compared with spot closing of 175.15. The number of contracts traded were 22,688.

Reliance Industries July 2014 futures traded at a premium of 9.30 points at 1016.80 compared with spot closing of 1007.50. The number of contracts traded were 18,087.

Tata Motors July 2014 futures were at a premium of 0.80 points at 453.20 compared with spot closing of 452.40. The number of contracts traded were 20,961.

Tata Steel July 2014 futures were at a discount of 5.05 points at 535.65 compared with spot closing of 540.70. The number of contracts traded were 19,741. Among Nifty calls, 7800 SP from the July month expiry was the most active call with an addition of 0.30 million open interests. Among Nifty puts, 7,500 SP from the June month expiry was the most active put with an addition of 0.18 million open interests. The maximum OI outstanding for Calls was at 8000 SP (6.29 mn) and that for Puts was at 7,000 SP (3.85 mn).  The respective Support and Resistance levels of Nifty are: Resistance 7650.08 --- Pivot Point 7634.12 --- Support --- 7618.73.

The Nifty Put Call Ratio (PCR) finally stood at 0.91 for July month contract. The top five scrips with highest PCR on OI were Maruti Suzuki (1.04), ACC (0.93), GAIL (0.91), UBL (0.89) and Just Dial (0.87).

Among most active underlying, Tata Steel witnessed an addition of 0.66 million of Open Interest in the June month futures contract, followed by Maruti Suzuki witnessing an addition of 2 million of Open Interest in the June  month contract; while Tata Motors witnessed an addition of 0.97 million of Open Interest in the June month futures contract, Hindalco Industries witnessed an addition 6.06 million of Open Interest in the June month contract and Larsen & Toubro witnessed a contraction of 0.47 million of Open Interest in the June month's future contract.