Derivatives outlook as banking sector enters the results season

The earnings season in the banking sector has begun, with prominent players like HDFC Bank and ICICI Bank announcing their financial results.

On July 17, HDFC Bank declared its quarterly results for the April-June period of FY24, reporting a net profit of Rs 11,951 crore. This figure represents a significant jump from Rs 9,196 crore reported a year back. The bank’s bottomline slightly surpassed market expectations, showcasing its robust performance.

As for ICICI Bank, its results are yet to be announced, building anticipation among investors and analysts.

Derivatives outlook 

Experts say that the futures and options data suggest that banking stocks have been consolidating in anticipation of the results, without showing much weakness.

Raj Deepak Singh, Derivatives Research Head at ICICI Securities, stated that open interest in the Bank Nifty is relatively low, indicating lower downside risk at current levels. Singh also attributed the recent relative underperformance in the banking space to the ongoing sectoral rotation, which has diverted some attention away from banks.

Rajesh Shrivastava, a derivatives trader and analyst, expects the bullish trend in the banking sector to continue. “The recent upswing in the IT sector can be viewed as a counter-trade strategy by investors who are booking profits in banks ahead of the earnings announcements. Banks are currently in a bullish phase, and we expect this trend to continue, albeit with some profit-booking prior to the results.”

Expected positions, target support, and resistance levels ahead of ICICI Bank’s Results

Raj Deepak Singh expects a positive bias in the Bank Nifty, with support levels around 44,500 for a target of 46,000 in the upcoming sessions. “Investors can consider selling out-of-the-money (OTM) puts or implementing Bull Spread strategies with a stop loss set at 44,500 levels.” he said.

Rahul K Ghose, Founder and CEO of Hedged, an algorithm-powered advisory platform, highlighted that the Bank Nifty Index broke through its crucial resistance level of 45,200, signalling positive momentum. Ghose emphasised that the index’s immediate target is set at 45,900 and projected that the Bank Nifty may exhibit stronger momentum, compared to the Nifty Index, which is displaying signs of waning momentum based on several indicators. He noted that heavy put writing observed at the 45,500 and 45,000 levels for both the July end expiry and the current week expiry.

“Additionally, big banking names like SBI and ICICI bank are poised for a breakout from a very popular chart pattern called the Head and shoulder pattern. This is a bullish pattern and looking at the current undertone of momentum, it is likely to play out. ” stated Rahul Ghose.

Options trading strategy recommendation

With the commencement of the banking sector’s results season, HDFC Bank has demonstrated strong profit growth, setting an optimistic tone for the industry. Traders and analysts remain cautiously optimistic about the future trajectory of the banking sector, anticipating continued positive momentum in the Bank Nifty Index and potential breakouts in major banking stocks.

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