Bearish momentum likely to continue but Bank Nifty, PSU banks, IT to buck the trend

The IT, bank and PSU bank sectors were the only ones to outperform the headline index in the derivatives market in the last week, according to a sectoral analysis of the derivatives market by Rajesh Sriwastava, derivatives trader.

During a recent Twitter Spaces conversation with Moneycontrol, Sriwastava shared insights based on derivatives data, shedding light on the market’s current scenario and expected stock specific activity.

Commenting on the previous week’s downturn, Sriwastava said that from a derivatives perspective, out of 185 stocks, 136 closed below the Volume Weighted Average Price (VWAP) last week. Notably, there were substantial movements in the derivatives market, such as with ICICI Bank, where 4,100 lots of call options were sold while only 800 lots put options were traded, indicating a bearish trend. Similarly with State Bank of India the position build up on October 27 showed that over 3,000 calls were sold while 580 puts were unwinded, signalling bearishness.

Additionally, Sriwastava stated that “This series is seeing light activity in the derivative space. No stock had opening open interest at the start of the november series higher than 40 percent of the average opening open interest position of last 3 months series.

Derivatives activity in certain stocks such as IGL and Power Grid however displayed notable positions. Further, stocks like Dalmia Bharat, GAIL and MGL also had significant position build-ups in the current series compared to the previous one.

Rollover positions and Nifty outlook

Sriwastava explained that Nifty had an average rollover of four percent, indicating a higher rate of rollovers and a continuation of existing positions. He stressed that last month’s market turbulence has led to a continuation of short positions in the index, with the expectation of continued bearish momentum. Interestingly, Nifty Bank outperformed the headline index, with ICICI standing out.

Data showing Bank Nifty outperforming headline index

Shift towards safe havens

In the midst of market volatility, there has been an increased demand for safe havens. Sriwastava highlighted that, shortly after the MCX closed on Friday, gold prices surged by approximately $15, reflecting a preference for safer and less risky assets amongst investors.

Sectoral insights

A detailed sectoral analysis of 21 sectors by Sriwastava revealed that only three sectors outperformed the headline index. By using two separate periods of the Relative Strength Index (RSI) (7 and 10) and employing the Rate of Change method (ROC), it was observed that the IT, Bank, and PSU Bank sectors outperformed. The IT sector and banks collectively contribute 60 percent to the Sensex.

Despite underperformance by PSU banks last week, none of the stocks significantly deteriorated. Their performance, while down compared to 14 days prior, remained relatively stable, suggesting resilience in contrast to the overall market trend.

Data shows an analysis of PSU bank stocks performance using the Rate of Change (ROC) method

“I conducted an analysis on PSU bank stocks using the Rate of Change (ROC) of the price ratio (index Vs. stock) over the past 7 days in comparison to the preceding 14 days. The data indicates that none of the PSU bank stocks weakened during last week’s market turmoil (refer to the data snapshot).

Although there are stocks underperforming compared to the PSU bank index, when we compare the same stock over the preceding 14 days these were weaker than now. For example, UCO bank RSI was -3.4  in the last seven days compared to -8.75 on 14 day scale”, said Sriwastava.

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