F&O weekly roundup|Bullish signals in IT, banks, metals, cement, and capital goods

In the week gone by, with the Reserve Bank of India (RBI) holding its key interest rates steady and upgrading the gross domestic product (GDP) growth projections, the Nifty witnessed a continuation of its bullish momentum and hit a fresh lifetime high up 3 percent for the week. Bank Nifty outperformed the Nifty, gaining by 5.45 percent for the week.

Looking at the larger picture, Bank Nifty is trading 1.5 percent higher, compared to its September swing highs, while the Nifty is trading 3.5 percent higher in the same period. However, the broader markets, Small cap and Midcap Index, despite hitting fresh lifetime highs, underperformed the Nifty. They gained only 2.35 and 1.3 percent, respectively, for the week.

Key Nifty levels

After seeing the strong bullish moves in the past few sessions, Sudeep Shah, Head of derivatives and technical research at SBI Securities, said: “Going forward, the 20700-20800 level, which is a gap area created last week, will act as a strong support. Till this zone holds, the index could continue its rally towards its higher levels of 21280-21400. On the downside, below 20700, it can retest the support levels placed at the 20450 zone, followed by 20225.”

Overbought conditions

The relative strength index (RSI) is sustaining above the 85-86 levels. This is indicative of the overbought nature of the index. “This implies a possibility of the index consolidating in the next few sessions, especially with the US Fed meet scheduled on December 13. This would keep the entire global markets on a wait-and-watch mode.”

Open interest interpretation

On a week-on-week basis, Nifty Futures have added 22 percent Open Interest (OI) positions, with prices gaining by 3.4 percent, indicating the strengthening of long build-up in the week gone by.

Significant call writing is witnessed in the 21000 and 21200 strikes, while on the puts front, 20900-20800 witnessed considerable OI additions. Overall, according to Shah, the range from a short-term perspective could be 20700 on the downside and 21250-21350 on the upside.

Key Bank Nifty Levels

Bank Nifty, in the week gone by, made fresh lifetime highs, gaining 5.3 percent, crossing its prior swing highs around the 46300 zone in July and September 2023.

“This was an important week for Bank Nifty in terms of an upmove as the last time the index witnessed an upmove to the extent of 5 percent was in July 2022,”stated Shah.

“The immediate support for Bank Nifty is likely to be in the 46300-46500 levels and until it holds the 46300 level, the index can rebound up to the 47950-48080 zone, where it will face some resistance. If it breaks Thursday’s swing low of 46500, the index can retest its next support at 45800-45600,” added Shah.

Open interest interpretation

On a week-on-week basis, OI action in Bank Nifty Futures have been flat while prices have gained by 5.5 percent, which, according to Shah, indicates the short-covering nature of the rally.

For the next weekly expiry, a significant OI build-up was witnessed in the 47000 and 46800 put strikes and 47500-48000 call strikes, which, Shah believes, implies a near term broader range of 46300 and 48000 for the banking Index.

India VIX

The volatility index, India VIX, ended at the 12.50 level, above its 200 DMA zone. Going ahead, Shah believes that any sustainable move above the level of 14.50 will lead to a sharp upside rally up to the level of 17.50-19 in the short term. On the downside, the zone of 11 will act as immediate support for India VIX. Below that, levels of 9-9.50 can be witnessed.

Sectors and stocks in momentum

Although a lot of sectors, such as financial services (NBFC & insurance), pharma, cement, midcap IT, oil & gas, auto and infrastructure are looking positive, most of them have reached the overbought zone, with the RSI approaching the 82-84 levels and above.

“It is not a sign for going short, but definitely some consolidation could be witnessed and we could see sector rotation in the coming week. Focus on good quality names, control over-leveraged positions, and remain hedged wherever possible,” advised Shah.

Stock-specific moves
Here are a few stocks with a bullish setup and supportive derivative data.

Banks

Buying momentum has emerged, specifically in largecaps like Axis Bank, HDFC Bank and ICICI Bank. PSU banks have found their mojo back with Canara Bank, PNB and Bank of India witnessing decent short-covering, and Shah expects the current upmove to extend to the coming week, too.

IT 

The IT index closed at its highest levels since April 2022 and Shah feels key midcaps, such as LTTS, LTI and Coforge, and largecaps, such as Infosys, TCS and HCL Tech, could outperform in the coming week.

Capital goods
Momentum was also visible in the capital goods stocks. LT, Cummins, Siemens and BHEL, Tata Power and NTPC are among them. Shah feels this strength in momentum could be visible in the coming week too.

Metals

“With the dollar index having stabilised at the lower levels of 103.5, metal stocks saw bullish moves, with the likes of JSW Steel, SAIL, JPSL, Tata Steel and Hindalco leading the way on the upside, ” said Shah.

Cement 
Dalmia Bharat, UltraTech Cement, and Ambuja Cement saw a decent build-up on the long side.

From the broader market, bullish setups were observed in Titan, Reliance, HDFC AMC, LIC Housing, Bajaj Finserv, Sun Pharma, Indigo, HAL, BEL, Concor, UBL and Bharat Forge.

FII – DII data synopsis
In the cash segment, FIIs and DIIs have been net buyers in the week gone by to the tune of Rs 9,252 crore and Rs 4,326 crore, respectively. The long-short ratio for FIIs in index futures has strengthened to 58 percent from the previous week’s 38 percent, which is quite positive. On the stock futures front, on a weekly basis, FIIs have bought about 16,000 contracts. Looking at the overall data, it’s positive and Shah says buying on dips is advisable until the Nifty holds 20700 and Bank Nifty holds around the 46400 level on the spot chart.

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