Derivatives Strategy Derivatives Monthly Outlook...

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Research Analysts

Raj Deepak Singh

[email protected]

Dipesh Dedhia

[email protected]

Amit Gupta

[email protected]

Nandish Patel

[email protected]

• PRODUCT 2

• PRODUCT 1

Derivatives Monthly Outlook

Level of 11600 remains crucial support for target of 12300

Other Product offerings

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November 5, 2019

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Underlying Action

Lupin Buy

CESC Buy

Torrent Power Buy

Duration : 1-3 months

Quant (Derivatives) Pick

Underlying Action

Coal India Buy

Nifty Buy

ACC Buy

Duration : 1-2 months

Derivatives Strategy

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November 5, 2019 ICICI Securities Ltd. | Retail Equity Research 2

Nifty recovers 2.6 % in October series

Nifty witnesses follow-up buying in October series

• After an up move of over 7% in September, the Nifty recovered from

the support level of 11200 in the October series with expiry happening

with 2.6 % gain

• Stable US markets above 2950 (S&P) in the entire October series and a

stable rupee also led the Nifty higher

• We saw positive FII inflows in both equity & debt markets in September.

Inflows of nearly ~| 14500 crore in equity and ~| 5000 crore in debt

were seen during the month

Sectoral performance: Recovery seen across sectors…

• The market was mainly driven by heavyweights as indicated by the

higher Nifty move

• Auto and oil & gas gained 12.80% and 7.50%, respectively

• Recovery was visible in midcap & small cap indices from lows as they

gained 5.6% and 3.9%, respectively

• Large gainers in the Nifty included Yes Bank (70.00%), Tata Motors

(52.12%), Eicher Motor (26.43%), SBI (22.06%), and Cipla (13.13%)

• Big losers in the Nifty included Bharti Infratel (-24.82%), Infosys (-

12.52%), Kotak Mahindra Bank (4.47%), Bajaj Finserv (-3.83%) and

UltraTech Cement (-1.65%)

Nifty ends 2.6% positive in October series

Recovery seen across the sectors

Source: Bloomberg, ICICI Direct Research

0% 5% 10% 15%

IT

Metal

Bank Nifty

Nifty

Small Cap

Pharma

Mid Cap

Oil

Auto

% returns

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Sep-

18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19

Mar

-19

Apr

-19

May

-19

Jun-

19

Jul-1

9

Aug

-19

Sep-

19

Oct

-19

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Nifty likely to sustain above 12000..

Nifty recovery may continue till 12300

• Major Call build-up was seen at 12000 & 12300 strikes. In the first session of the November series, the data has evolved a little

wherein 12000 Call on the higher side is becoming an immediate hurdle level with OI of over 18 lakh shares. A move above

12000 is likely to take the Nifty towards 12300

• The Nifty is starting the new series with almost 14.3 million shares, which is second lowest Nifty OI ever seen in last three years.

Continued closure is seen among short positions in the last couple of weeks. The roll spread has also remained under pressure

and has been unable move above 50 points due to lack of fresh long additions in the November series

• Midcap stocks have started getting inflows seeing the stability pattern in the index. FII inflows of more than ~| 14500 crore were

seen in October

• We believe the Nifty’s current uptrend may go into some consolidation before crossing a life-time high of 12120 in the short-

term. However, it should continue to pick up as the series progresses. Though almost all sectoral indices are contributing to the

rally, we feel outperformance would be seen in cement and metal stocks in coming weeks

Positional support for Nifty near 11500-11600

• On the lower side, 11600 Put has the maximum OI build-up (over 17 lakh shares), with OI build-up seen at 11500 Put strike as

well. This suggests 11500/11600 would remain good support levels for the November series

• Among stocks, FMCG and IT are starting the new series with significantly high open interest. Short covering rally was seen in

PSU banks, cement, auto and metal stocks suggesting the long bias seems to be continuing in coming weeks. However, at higher

levels, profit booking can be seen in select private banks and consumption stocks in the November series

• We reiterate our bullish view on the Nifty suggesting continuing with “buy on dips” approach

• Stability of Indian equities will depend on the global set-up. The immediate catalyst for risk sentiment remains US-China trade

talks and the geopolitical situation in the Middle East


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2.25

2.3

2.35

2.4

2.45

2.5

2.55

2.6

2.65

2.7

No

v-1

8

No

v-1

8

De

c-1

8

Jan

-19

Feb

-19

Feb

-19

Mar

-19

Ap

r-1

9

Ap

r-1

9

May

-19

Jun

-19

Jun

-19

Jul-

19

Au

g-1

9

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Ba

nk

NIf

ty/

Nif

ty P

rice

Ra

tio

0

5

10

15

20

25

30

16-J

an-1

9

30-J

an-1

9

13-F

eb-1

9

27-F

eb-1

9

13-M

ar-1

9

27-M

ar-1

9

10-A

pr-1

9

24-A

pr-1

9

8-M

ay-1

9

22-M

ay-1

9

5-Ju

n-19

19-J

un-1

9

3-Ju

l-19

17

-Ju

l-19

31

-Ju

l-19

14

-Au

g-1

9

28

-Au

g-1

9

11

-Se

p-1

9

25

-Se

p-1

9

9-O

ct-1

9

23-O

ct-1

9

Nif

ty O

I (in

mil

lio

ns)


F&O data suggests Nifty positive bias remain intact..

Nifty near mean level; approaching towards +2* Sigma Bank Nifty/Nifty price ratio: Recovering from support

Nifty options OI build-up: Suggests support near 11500-11600Nifty futures OI: Lowest in three years at inception


10000

10500

11000

11500

12000

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Feb-1

9

Mar-

19

Apr-

19

May-1

9

Ju

n-1

9

Ju

l-19

Aug-1

9

Sep-1

9

Oct-

19

Nifty

level

Last Price Sigma+ Mean Sigma-

0

2

4

6

8

10

12

14

16

18

20

11200

11300

11400

11500

11600

11700

11800

11900

12000

12100

12200

OI in

Lacs

Call OI Put OI

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0.5

1

1.5

2

2.5

3

31

-Oct

-20

18

14

-No

v-2

01

8

28

-No

v-2

01

8

12

-Dec

-20

18

26

-De

c-2

01

8

9-J

an-2

01

9

23

-Jan

-20

19

6-Fe

b-2

019

20

-Fe

b-2

01

9

6-M

ar-2

01

9

20

-Mar

-20

19

3-A

pr-

20

19

17

-Ap

r-2

01

9

1-M

ay-2

019

15-M

ay-2

019

29-M

ay-2

019

12

-Ju

n-2

01

9

26

-Ju

n-2

01

9

10

-Ju

l-2

01

9

24

-Ju

l-2

01

9

7-A

ug-

20

19

21

-Au

g-2

01

9

4-Se

p-2

019

18

-Se

p-2

01

9

2-O

ct-2

01

9

16

-Oct

-20

19

30

-Oct

-20

19

Ba

nk

Nif

ty O

I (in

mil

lio

ns)

0

100

200

300

400

500

600

700

29800

29900

30000

30100

30200

30300

30400

30500

30600

30700

30800

30900

31000

31100

31200

31300

OI in

Thousands

Put OI Call OI


Bank Nifty: Ongoing trend remains intact till index holds 29000

• Similar to the Nifty, the banking index also saw a recovery. However, in relative terms, the Bank Nifty underperformed the Nifty index.

The stagnant Bank Nifty/Nifty price ratio suggests that other sectors have also strongly participated in the current rally in the Nifty

• Looking at the options build-up, the Bank Nifty is likely to trade within the broader range of 31800-29000. We feel the key pivot for the

series remains at 31000 for upsides to continue. On the Call side, however, additions were seen in 31000, which is also the second

highest Call base for the series. We feel the upside in the index will continue with support now placed at 29000

• The Bank Nifty is starting the new series with significantly lower open interest with less than 0.8 million shares, which is the lowest

Bank Nifty OI seen at the inception in the last eight years. The outperformance of the banking index can be attributed to sharp

covering seen among banking heavyweights. The roll spread in the banking index also remained subdued and was seen around 100

points for most of the week

• The current price ratio of Bank Nifty/Nifty is near 2.53. We feel the ratio will consolidate near these levels while outperformance in

banking stocks can be seen once the Bank Nifty closes above 31000

Bank Nifty options OI build-up Bank Nifty OI: Lowest in eight years at inception


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-30000

-20000

-10000

0

10000

20000

30000

40000

| c

rore

-25000

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

Aug-1

7

Sep-1

7

Oct-17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-18

Mar-18

Apr-18

May-18

Jun-1

8

Jul-1

8

Aug-1

8

Sep-1

8

Oct-18

Nov-1

8

Dec-1

8

Jan-1

9

Feb-19

Mar-1

9

Apr-19

May-19

Jun-1

9

Jul-1

9

Aug-1

9

Sep-1

9

Oct-19

| c

rore

1500

1700

1900

2100

2300

2500

2700

2900

3100

3300

Jul/15

Sep

/15

Nov/15

Jan/16

Mar/16

May/16

Jul/16

Sep

/16

Nov/16

Jan/17

Mar/17

May/17

Jul/17

Sep

/17

Nov/17

Jan/18

Mar/18

May/18

Jul/18

Sep

/18

Nov/18

Jan/19

Mar/19

May/19

Jul/19

Sep

/19

S &

P index


Indian equities witness one of the highest inflows since March 2019…

• The S&P 500 took out its July record high of 3025 and touched a

fresh high of 3066 after President Donald Trump said the US is ahead

of schedule to sign part of the US-China trade deal

• Multiple factors led to improving risk sentiment like declining

concerns over US-China trade rift, delay in Brexit date till January 31,

2020. Also, Fed in its October policy meeting hinted at strength in US

economy, which helped risk assets especially equities to move

higher

• Foreign investors have poured over $2 billion in Indian equity

markets in October while debt has seen inflows to the tune of almost

$800 million

Debt markets witness inflows of ~$800 million

FIIs’ equity sees buying of almost $2 billion in OctoberS&P 500 registers fresh life-time highs


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Date Scrip Action Recommendation

Derivatives Strategies: Open recommendations

Back


29-Oct-19 Coal India Buy Positional Future : Buy Coal India November Future at 204.5-206.5, Target: 229 , Stoploss: 191 (time frame: till November expiry)

30-Oct-19 ACC Buy Positional Future : Buy ACC November Future at 1565-1575, Target: 1725 , Stoploss: 1490 (time frame: till October expiry)

30-Oct-19 Nifty Buy Long/Short Strategy : Buy Nifty Nov 11900 Call at 180-190 and Sell 12200 Call at 70-75, Total out-flow: 113 points, Target 12200 (time frame: till Nov expiry)

01-Nov-19 United Spirits Buy Long/Short Strategy : Buy United Spirits Nov Future at 635-639 and Sell 660 Put at 14-16, Target: 675, Stop-loss: 602 (time frame: till Nov expiry)

04-Nov-19 Sun Pharma Buy Long/Short Strategy : Buy Sun Pharma Nov future at 440-442 and Buy 430 Put at 12-14, Target 485, Stop-loss: 410 (time frame: till Nov expiry)

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Quant Picks: Open recommendations


Back


Date Scrip Action Buy Price Target SL CMP %Ret Time Frame

14-Aug-19 Torrent power Buy 285-292 340 260 287 -0.4% 3 months

11-Sep-19 CESC Buy 790-810 940 725 827 3.4% 3 months

09-Oct-19 Larsen & Toubro Buy 1390-1420 1620 1320 1458 3.0% 3 months

22-Oct-19 Dr Reddy Buy 2750-2800 3250 2535 2797 -0.1% 3 months

23-Oct-19 Voltas Buy 685-700 815 630 689 -1.6% 3 months

31-Oct-19 Exide Industries Buy 186-191 230 171 189 -0.6% 3 months

04-Nov-19 Ultratech Cement Buy 4180-4250 4950 3840 4228 -0.5% 3 months

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st

Floor, Akruti Trade Centre,

Road no.7, MIDC

Andheri (East)

Mumbai – 400 093

[email protected]


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Disclaimer


ANALYST CERTIFICATION

We /I, Amit Gupta B.E, MBA (Finance), Raj Deepak Singh BE, MBA (Finance), Nandish Patel BCOM, Dipesh Dedhia BCOM, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby

certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or

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