Nifty witnesses smart pull back rally; recaptures 7,500 mark

The local benchmark, Nifty witnessed exceptional recovery on Tuesday by snapping its five-day losing streak and ended the day’s trade above its crucial 7,500 level gaining about a percent from its previous close. Improved macro economic data and positive global cues provided support to the domestic index. Sentiment got a boost after retail inflation dipped to a 30-month low of 7.31 per cent in June and WPI index slid to a four-month low of 5.43 per cent, raising hopes of a rate cut by the RBI at its policy review next month. However, gains remained capped on report that foreign portfolio investors (FPIs) sold shares worth a net Rs 558.25 crore on July 14, 2014. Traders were seen piling up positions in Consumer Durables, Bankex and Capital Goods while selling was witnessed in FMCG, HealthCare and IT sector stocks.

After gap up opening, nifty showed some strength in morning trades, but the sentiments turned pessimistic in afternoon trades and index start drifting lower, however the market regained its momentum in the final hour of trade and finished the day gaining around a percent on the index. Strong buying was seen in rate sensitive stocks such as banking and realty after wholesale and retail inflation fell more than expected for the month of June. On other hand, selling was witnessed in some Pharma stocks after the country’s pharmaceutical pricing regulator capped the prices of 50 drugs used to treat diabetes and heart diseases.

The market is likely to show some recovery in coming days as easing inflation could provide the necessary comfort to the central bank to ease key policy rates. However, deficient monsoon and rise in fuel prices due to the ongoing political tensions in the oil-producing regions of West Asia are likely to remain a cause of concern, which could potentially push up food prices in the ensuing month. Meanwhile, if the market remained range bond in coming days, it will give benefit to option sellers as it will reduce premium. In the index option segment, maximum OI continues to be seen in the 8000-7800 calls and 7500-7300 puts indicating the expected trading range. In today's session, the 7600, 7700 and 7900 Call strikes saw addition of 4.85, 1.44 and 1.03 lakh shares, respectively. On the other hand, 7500, 7400 and 7100 Put strikes saw addition of 5.75, 4.04 and 3.09 lakh shares, respectively.

Most of the sectoral indices on the NSE were settled in the green, CNX PSU Bank up by 4.04%, Bank Nifty up by 2.78%, CNX Finance up by 2.04%, CNX Realty up by 1.97%, CNX Metal up by 1.59%, CNX Auto up by 1.52%, CNX Energy up by 1.14% and CNX Media up by 0.81% while CNX Pharma down by 0.41%, CNX IT declined by 0.14% and CNX FMCG down by 0.14%, remained the losers in the trade.

The India Volatility Index (VIX), a gauge for market's short term expectation of volatility decreased by 5.11% and reached 14.76. The 50-share CNX Nifty increased by 72.50 points or 0.97% to settle at 7,526.65. Nifty July 2014 futures closed at 7538.60 on Tuesday at a premium of 11.95 points over spot closing of 7,526.65, while Nifty August 2014 futures ended at 7579.05 at a premium of 52.40 points over spot closing. Nifty July futures saw an addition of 0.22 million (mn) units, taking the total outstanding open interest (OI) to 14.38 mn units. The near month derivatives contract will expire on July 31, 2014.

From the most active contracts, IDFC July 2014 futures traded at a discount of 1.85 points at 148.25 compared with spot closing of 150.10. The number of contracts traded were 16,275.

DLF July 2014 futures traded at a discount of 0.40 points at 213.80 compared with spot closing of 214.20. The number of contracts traded were 13,876.

Reliance Industries July 2014 futures traded at a premium of 4.40 points at 977.80 compared with spot closing of 973.40. The number of contracts traded were 28,357.

Tata Steel July 2014 futures traded at a discount of 1.35 points at 528.00 compared with spot closing of 529.35. The number of contracts traded were 13,006.

Reliance Capital July 2014 futures were at a premium of 0.50 points at 586.70 compared with spot closing of 586.20. The number of contracts traded were 17,892.

Among Nifty calls, 7600 SP from the July month expiry was the most active call with an addition of 0.42 million open interests. Among Nifty puts, 7,500 SP from the June month expiry was the most active put with an addition of 0.46 million open interests. The maximum OI outstanding for Calls was at 8000 SP (9.57 mn) and that for Puts was at 7,500 SP (4.97 mn).  The respective Support and Resistance levels of Nifty are: Resistance 7554.65 --- Pivot Point 7506.90 --- Support --- 7478.90.

The Nifty Put Call Ratio (PCR) finally stood at 0.73 for July month contract. The top five scrips with highest PCR on OI were ITC (1.45), BATA India (1.21), Just Dial (1.13), Sun Pharma (0.87) and GAIL (0.86).

Among most active underlying, State Bank of India witnessed a contraction of 0.10 million of Open Interest in the June month futures contract, followed by ICICI Bank witnessing a contraction of 0.54 million of Open Interest in the June  month contract; while Reliance Capital witnessed an addition of 0.31 million of Open Interest in the June month futures contract, Reliance Industries witnessed an addition 0.25 million of Open Interest in the June month contract and Reliance Industries witnessed a contraction of 0.04 million of Open Interest in the June month's future contract.