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Monthly Derivatives

Sustainability above 8250/8050 likely to lead pullback towards 8650…
Research Analysts
Amit Gupta
amit.gup@icicisecurities.com
Azeem Ahmad
azeem.ahmad@icicisecurities.com
Raj Deepak Singh rajdeepak.singh@icicisecurities.com

May 5, 2015

metals in coming month… • 4. which ended with losses.Nifty closes series with 2% loss: Third consecutive expiry with negative returns… April series ends with 2% losses as FIIs shun equities … 8.0% 4% Sectoral focus seems to be on banking. we maintain our positive bias on metal stocks (moving up on strong short covering trend) and banking stocks (many of them have reported strong Q4 numbers) Small Cap Banks Metal 8 6 4 2 0 -2 % monthly return -4 -6 -8 . While the midcap index ended with a loss of 1%. there has been a trend of the Nifty making a pullback soon after an expiry. At the same time.0% -1% -3% 3% -4% -4% -3% 3% -2. the small cap index managed to hold in the positive territory Capital Goods Nifty Mid Cap Based on the April series rollover data. A similar trend is expected in the May series as well as the Nifty is expected to take support at lower levels of 8050 and head higher 10.0% Apr'15 Mar'15 Nov Oct Sep Aug Jul Jun May -4.0% 6% Feb'15 In the last two expiries. During the month. a weak set of quarterly numbers from IT pushed these stocks lower.0% Apr The stock action in the April series was hugely influenced by Q4FY15 results.0% 9% 4% 3% 3% 3% 3% • • 0.0% Jan'15 • Nifty expiry returns in trailing 12 months Profit booking in the broader markets led to a decline in the April series. This is the third expiry on the trot where the Nifty has closed with losses Dec • S t l performance Sectoral f iin April A il : broad b d based b d weakness k IT The broader market indices ended mixed.0% 6. better-than-expected results from banking stocks pulled stocks from this space higher 2.

the Nifty is down 1% for 2015 (as of April 30. Indian equities one of the worst performers so far in 2015… • After strong 30% returns for 2014. Post the ECB QE.On the back of profit booking post Union Budget. which was also the key reason for the recent decline • From a fund allocation stand point. 2015). A weak Q4 earnings season did not help this as well. This decline was triggered by quite a few key global fund allocators who raised concerns on overheating of Indian equities in the short-term • The profit booking trend was also magnified as the most anticipated events viz. interest rate cuts. European equities also witnessed a strong performance while most key European markets are also up over 15% each in 2015. Turkey. India and Indonesia remained underperformers Indian equities clocking one of the weakest performance in EMs & DM … 25% 20% 15% 10% 5% 0% Indonesia India Turkey US Thailand UK Philipines So outh Africa Japan Brazil Germany France Russia Italy -5% . the Union Budget and RBI rate cuts have already panned out. which were severely impacted by the commodity and crude sell-off. tactical portfolio flows are seen in Brazil and Russia.

5 8200 7700 2 7200 6700 1. we saw high rollover of positions in index heavyweights. At the same time 8000 Put also has high open interest. which bulls are likely to protect. Nifty options build-up in May series … Nifty 2 sigma Band : sigma expansion likely 9700 4 9200 8700 3. many of which were higher beta and had leverage. Consolidation expected in Nifty within above range • Q4 results of most of the important index heavyweights are already out and there are no major foreseeable triggers remaining for May (globally.5 79900 OI in Million Sharres 3 2. going ahead. the highest Call build up is seen at the 8600 Call of 3 million shares. This leverage. Why is 8650 resistance ? • In the May series options build-up. • Currently.2 sigma band also suggests support for Nifty around 8000 (visible in second chart below). there are some headwinds building in the form of crude price up move. Greece debt crisis and fears of a split mandate in the UK elections) • Fund allocation action from global investors seems to have halted in India although the flow remains strong from domestic institutions.2 SD Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 May-14 M 89900 88800 87700 86600 85500 84400 83300 82200 81100 80000 0 Jun-14 6200 5700 1 0. is likely to push Nifty into consolidation on liquidation expected in these stocks at higher levels. • On April expiry. however. Level of 8000 is also important. the Nifty is likely to find support around 8050. Hence.5 Call OI Nifty Put OI 4 Mean+ 2 SD Average Mean .5 .Sustainability above 8250/8050 likely to lead pullback towards 8650 … Why yp positional support pp is p placed near 8050? • May series is starting with the highest options base at the 8100 Put strike. Nifty .

On declines. We expect the positive bias in the banking to continue till it holds the support of 18000. Call writing. the banking Index was up over 1.6 . We expect this ratio to continue to move up towards 2.1 Call OI 5 Put OI 195000 193000 191000 189000 187000 185000 183000 181000 179000 177000 0 175000 OI in Millions 0.2 0.Bank Better-than-expected Q4 numbers trigger banking outperformance … DealNifty: Team – At Your Service • The banking index held its ground during the April series as better better-than-expected than expected results from many key private banking stocks helped the index to outperform the Nifty. PSU banking stocks have so far been unable to recover as their results are still awaited. which gives hope of some reversal in these stocks in the days to come • The price ratio of Bank Nifty/Nifty has increased to 2. which also justifies the fact that the Bank Nifty has been outperforming the Nifty.24 from 1. is seen only at the 19000 strike • Private banking stocks have outperformed in the recent leg after they reported better results. The index has outperformed the Nifty in the recent leg.5 04 0. on the higher side.3 0.5% • The banking Index is likely to continue to lend support.30 • Recent surge in G-sec yields and higher inflation reading in May could spoil the upward trend of the banking space B k Nifty Bank Nift options ti bbuild-up ild f M for May series i 0.17.7 0. it has recovered from 17700 since November 2014. It has an important support placed at 18000. For the month.4 0. The only result from Andhra Bank has remained positive.

Last time. the focus is back to corporate earnings & growth in Q4. Now. fund allocation in EMs has resumed. wherein h i nett off block bl k deal d l FII inflows i fl were tepid t id INR is Cr • . Thus. April FII inflows were in excess of US$1. In the Index option segment there was constant buying as participants rushed to hedge their cash portfolios 0 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Jun-14 Jul-14 Aug-14 -5000 Debt market flows missing as the limit of Govt debt is almost hit… 20000 15000 10000 With Wi h the h government kick ki k starting i b borrowing i f for 2016 (expected to be over | 6 trillion). FIIs have actually taken out close to US$1. 5000 0 -5000 -10000 6 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 Apr-14 -15000 15000 Jun-14 With the US Fed delaying an interest rate lift-off till June. This could make equity markets lacklustre for a while as bulk of the flows target debt.5 US$1 5 billion.FIIs outflows for current decline in market… Deal Teamkey– reason At Your Service 30000 25000 20000 In the index futures segment short creation was seen as the OI during the series increased 25% amounting to over US$ 340 million. outflow from the debt segment was seen in April 2014 15000 Apr-14 • • Bulk of FIIs cash buying in last two months is seen mostly in block deals INR in Crr • In April. billion However. which totalled close to US$3 billion. if one looks at the net figure. However this figure is showing inflows only because of the Sun Pharma block. the bond market is likely to see improved fund allocation as the borrowing programme is expected to be front loaded. A similar trend of FII flows was also seen in March. which have been a mixed bag till now 5000 May-14 • 10000 May-14 Outflows were seen in the debt segment as well while during the month there was outflow of over US$1 billion.5 billion. However India has not been favoured largely because key events like RBI rate cut and Union Budget are already over. resumed However.

• The spread between India VIX and US VIX had moved into positive territory since the start of 2015 and is currently near 5.eurozone stand-off . • We believe India VIX is likely to stay in the elevated range of 14-20. with the pivot around its 100 week moving average of 18. On downsides. • As the Nifty plummeted from 8840 from the middle of the month to 8200 towards April expiry. rose from 14 to 20.Any sustainable short covering can be seen only above 5530. volatility is likely to stay elevated India VIX likely to consolidate in the earnings season … 7 . It suggests the volatility on domestic bourses is higher than US. India VIX: Likely to consolidate in higher band of 14-20… selling pressure may aggravate below 5350 …. VIX the investor investor’ss fear gauge. The impact of this surge of India VIX has been negative on Indian equities wherein the Nifty is negative for the year while the S&P is up over 2% for the year • With concerns on the Greece . UK elections and Syria conflict still open. expiry India VIX.

Stop loss | 119 Rationale: Ahead of Q4 numbers. however. Stop loss: | 331 Rationale: Godrej Industries has been in a secular trend of an up move since the start of 2015. long additions are likely to pan out in the stocks. However. The short open interest in some of the stocks is still high and Federal Bank is one such stock stock.5 Target | 160. support is placed near April expiry i low l off | 335. The stock is currently trading with record high leverage leverage. As the stock has moved into the new orbit by trading above | 370 levels. However. H we recommend d buy b on the th stock. 2) UPL Ltd (UNIP) Buy UNIP in the range of | 480-487. as the stock initially tumbled over 15% to 400. these short positions are getting closed.5-133. Stop loss: | 437 Rationale While the Nifty in the last week tumbled 1. Closure in these positions is likely to provide impetus to the stock 3) Godrej Industries (GODIND) Buy GODIND in the range of | 364-371. 335 where h th stock the t k witnessed it d highest hi h t volumes l since i F b February 2014 Hence. which fuelled further upsides in the stock. Federal Bank is likely to perform. Target: | 578. which is likely to provide the required fuel for further upsides in the stock. the OI in the stock swelled 35% to 5700 contracts. which were rolled into the May series and are getting covered now. 480 487. In the last month. which is likely to take the stock higher.Positional Recommendations Deal Team – At Your … Service 1)) Federal F d l Bank B k (FEDBAN) Buy FEDBAN in the range of | 130. However with the pullback in the stock. 8 . The company posted a strong set of quarterly numbers on April 27. It is constantly moving up on the back of short covering while the current OI is the lowest seen in the trailing one year. Target: | 445.5% . 2014. On the lower side. These were short positions. The stock has already registered strong growth of over 40% from the lows of | 270. now With the stock moving above the key shorting level of | 480. With banking stocks continuing to attract fund flows. 480 short positions are getting unnerved. a strong set of Q4 FY15 numbers in most private banking stocks has triggered a round of short covering in this space. UPL ltd moved up over 15%. with a target price of | 445 and stop loss of | 331. most banking stocks were trading weak.

JSW Steel has also showed strong resilience in the recent Nifty decline towards 8100. It constantly held the lower support levels of | 930. The Nifty. Current price ratio ( Nifty/JSW Steel) : 8. on the other hand. We recommend an alpha trade recommendation of long JSW Steel and short Nifty. Post expiry.83. as short covering has commenced in the stock. which is likely to propel fresh upsides in the Nifty. 9 . Stop loss: 9. metal stocks have shown a lot of resilience. witnessed strong declines in the expiry week. The stock is still high on short positions.13 Rationale: Since the middle of the April series. which remained subdued for a long period.70. Target: 7.13. it has shown a pullback. This has triggered buying in the metal space. with a target price ratio of 7.Positional Recommendations Deal Team – At Your … Service 4) Alpha Al h Trade T d : Buy B JSW St Steell & sell ll Nift Nifty Buy JINVIJ May futures at | 954-959 and sell Nifty May futures at 8350-8360.83 and stop loss of 9.

US Manufacturing PMI 29 May : GDP. Core PCE • • • • Euro zone: 06 May : PPI and PMI Services & Composite 13 May : Industrial Production & GDP.Forthcoming Events… Deal Team – At Your Service • • • • • • India: 08 May : Local Car Sales 08 May : Import & Export 12 May : Industrial Production and CPI 14 May : WPI 29 May : GDP YoY 31 May : Fiscal Deficit • • • • • • • US: 07 May : Initial Jobless claims 14 May : PPI. PMI Services and Composite 13 May : BoP Current Account Balance and Trade Balance 18 May : Industrial Production and PPI 20 May : GDP 22 May : BoJ’s Annual Rise in Monetary Base • • • • China: C a 09 May : PPI and CPI 13 May : Industrial Production 21 May : PMI Manufacturing z z z z z UK: 07 May : General Elections 11 May : BOE Bank Rate and BOE Asset Purchase Target 13 May : BoE Inflation Report 19 May : CPI. Initial Jobless Claims. 15 May : Industrial Production & Empire Manufacturing 20 May : US Fed releases Minutes of FOMC Meeting of Apr 28-29 22 May : CPI. RPI and PPI 29 May : GDP . ECB account of the Monetary policy Meeting 19 May : CPI 28 may : Consumer Confidence • • • • • Japan: 07 May : Monetary Base.

Allocation Products Return Objective Product wise Max allocation allocation per stock Frontline Mid-capp Number of Calls Stocks stocks Duration Daily Derivatives 5% 2-3% 2 Stocks 1% 2-3% Intraday Weekly Derivatives 10% 3-5% 2 Stocks 3-5% 5-7% 1 Week High OI stock 5% 2-3% 2-3 Stocks 5-7% 7-10% 1-2 Weeks M hl Derivatives Monthly D i i 15% 3 5% 3-5% 47S 4-7 Stocks k 7 10% 7-10% 10 15% 10-15% 1M Monthh Global Derivatives 5% 2-3% 1-2 index strategy - - 1 Month Stock Trader/ Stock in Focus 15% 2-3% 5-6 Stocks 7-10% 10-15% 3 Months Quant Picks 10% 2-3% 2-3 Stocks 7-10% 10-15% 3 Months Alpha Trader 5% 22-3% 3% 22-33 Alpha strategy 5% - 3 Months Volatility Insights 5% 2-3% 1-2 Strategy 8-10% 10-15% 1-2 Month Arbitrage Opportunity 5% 2-3% 2-3 Stocks > 2.Portfolio allocation in Derivatives Products… • • • • • It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives research products Please avoid allocating the entire trading corpus to a single stock or a single product segment Within each product segment. Time frame for these recommendations is 3 month. it is advisable to allocate equal amount to each recommendation. For example: The ‘Daily Derivatives’ product carries two intraday recommendations.5% Event Based Positional / Daily Futures 5% 2-3% 8-12 Stocks 1-3% 2-5% 1-14 days Index option & Strategy 5% 3-4% 2-5 Nifty 2-3% - 1-14 days Stock option & Strategy 5% 3-4% 2-8 Stocks - 3-5% 1-14 days Currency Futures 5% 3-4% 3-5 Calls - - Intraday 11 .5% >2. It is advisable to allocate equal amountt to t each h recommendation d ti Stock Trader & Quant Picks recommendations should be considered in cash segment and stoploss on closing basis.

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