Nifty futures Open Interest at ten series low; use any correction to accumulate long positions

We have seen higher rollover of 92% to the August series in the stock futures segment as against last three series average rollover of 88%.

By Nandish Shah

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Nifty remained in the narrow range of five hundred points during the entire July series to close with losses of 0.08%. This is the lowest series to series change since June 2017. Bank Nifty continued its underperformance for the second consecutive series where it ended the July series with the losses of 0.39% to close at 34692 levels. This is the second consecutive series loss for the Bank Nifty.

We have seen a higher rollover of 92% to the August series in the stock futures segment as against the last three series average rollover of 88%. In the Nifty and Bank Nifty we have witnessed rollover of 83% and 81% as against the last three series average rollover of 76% for them.

In the Stock futures segment, we are starting the August series with an Open interest of 437 crore shares as against 422 Cr shares at which we had begun the July series.

Though Stock futures open interest at the beginning of the series is 3% higher as compared to the last series, It is still 16% lower than the all-time high Open Interest of 523 crore which was seen in February 2018. This Lower Open despite markets are at an all-time high indicates markets are not heavy in terms of positions.

One more notable thing is the Open Interest in the Nifty Futures. We are starting the August series with the Nifty future OI of 0.95 Cr shares. This is the lowest Open Interest in the Nifty futures since October 2020 at the beginning of the series. Moreover, It is only 50% of the last 15-year average OI of 2 Cr shares.

On the other hand, We are starting the August series with the Bank Nifty future OI of 20.22 lakh shares as against 19 lakh shares last series. This higher Open Interest coupled with the fall in the Bank Nifty during the second half of the July series indicates short build-up

OUTLOOK FOR THE AUGUST SERIES

Use any correction to accumulate long positions

To Sum it up, Lower stock Futures’ Open Interest (compared to all-time highs) despite more than hundred per cent rise in the Nifty from the March 2020 lows, Lower Open Interest in the Nifty Futures in terms of number of shares (half of the last 15-year average), FIIS Index Future long to short ratio above one and Put writing at 15300-15500 levels indicates that downside is limited in the market and one should continue to remain optimistic for the August series. 

Moreover, Lower Open Interest in the Nifty and stock futures at the beginning of the August series tells us that the derivative positions are not likely to be a milestone around the neck of the markets for the August series also. 

Therefore, for traders, our advice would be to remain bullish and use any correction towards 15500-15700 levels to accumulate long positions with SL of 15300 levels. On the higher side, 15900-16000 level to continue to act as a strong resistance where we have seen call writing. Any close above 16000 level would result into short covering which might push Nifty to even 16300-16400 levels 

Amongst the sectors Cement, Metal, IT and PSU Banks are likely to do well in the August series.

(Nandish Shah is a Senior Derivative & Technical Analyst at HDFC Securities. Views expressed are the author’s own.)