F&O Talk | Midcaps, smallcaps show strength: Is broader market gaining leadership? Riyank Arora explains

The Nifty index experienced a strong comeback of bullish momentum during the March series, which was much needed after consistent selling over the past five series. After dipping to the 21,950 level in the first week, the index saw a steady upward movement, recovering 1,900 points to cross the 23,850 mark. This was further confirmed by the formation of a bullish engulfing candle and an outside bar from expiry to expiry, signaling strong bullish dominance at key support levels.

The March series also saw a 20.2% reduction in open interest, coupled with a 4.6% rise in price on an expiry-to-expiry basis, indicating that short positions were covered. The rollover for Nifty stood at 76.1%, which is lower than both the previous month’s rollover and the quarterly average of 80.1%, suggesting a decrease in momentum for longer-term positions.

With these dynamics, analyst Riyank Arora, Derivatives Analyst, at Mehta Equities, interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the April series. Following are the edited excerpts from his chat:

Markets are trying to show resilience despite global headwinds, recovering sharply from earlier losses. The ones we had seen since the beginning of this year. What’s your interpretation of this reversal, and what does it tell us about the underlying sentiment?

With Nifty bouncing well off its 5-period EMA as well as the crucial 100-day moving average, I feel that the reversal is indicating some bit of bullishness in the market. Immediate support is now placed around 23,400, with immediate resistance being around 23,850 levels. The underlying sentiment is now appearing to take a shift from sell on rise, to buy on dips.

We saw Nifty bouncing off its 100-DEMA and forming a green candle on Thursday. Technically, how significant is this level, and could this be a setup for another leg of the rally?

Technically, the level of 23,400 is a crucial support mark for traders to watch for another leg of the rally. If we hold well above this, we can expect a momentum rally to stretch towards 23,800 and 24,000 odd levels. However, a break below this can bring some minor pain towards the 23,300 and 23,100 mark.

What do you read about India VIX now? And does this sign a market comfort or complacency amid global uncertainty?

With INDIA VIX being somewhere around 12.7, I feel that the volatility is taking a drop, and we are seeing some stability returning from lower levels. However, going forward, if there is any tariff-related news or global uncertainty, it can cause a spike in the volatility index. But yes, for the time being, we are trading on a stable note.

Trump’s 25% auto import tariff announcement created a ripple effect globally. How serious is this threat for Indian equities, especially in trade-sensitive sectors like auto and pharma?

The impact of the 25% auto import tariff was expected to be negative, especially in the trade-sensitive sectors like auto and pharma. However, I feel technically both the sectoral indices are trading at their crucial support mark. For the Nifty Auto Index, a crucial support is placed 21,200 mark, and for the Nifty Pharma Index is placed around the 21,000 mark. If these levels break, we can see selling pressure in the indices however, a strong hold above these indicates risk reward being in favour of bulls.

A strong foreign fund inflow is driving optimism. Do you believe FIIs are returning with conviction, or is this more of a tactical play ahead of earnings season?

With the FII’s data in the cash segment being Rs 2,000 crores on the net buyer’s side, we feel that this inflow is indeed indicating some optimism. The return is signalling good buying from lower levels with conviction and we feel that they are turning optimistic on India overall. As I said based on technical, I feel that 23,000 is a major support and if that holds well, we are poised for a rally towards 24,000 and higher levels.

What has been the role of domestic investors (DIIs and retail) in supporting the market through volatile phases recently? Will they be stepping in when FIIs pull back?

With the FII’s stepping back in, we feel that the domestic investors would be turning on the positive side as well. As you know, we witnessed good selling pressure across the board in midcap and small-cap stocks. From lower levels, FIIs are trying to support the markets and we expect the sentiment to change and the domestic investors to enjoy the rally as well.

Energy and realty sectors are outperforming, while auto and pharma lagged. Are we seeing a clear sectoral rotation at play, or is this more of a reaction to global developments?

Auto and Pharma have been lagging because of the 25% auto import tariff news coming in, and the two sectors being most sensitive are being a laggard. I feel that most of the sectoral indices are appearing to take support around their 5,9, and 21-period exponential moving averages, which is a relatively positive sign for the same, and we expect them to head higher from here. I feel that the outperformance in Energy and Realty compared to the sluggishness in Auto and Pharma is a sign of news-related move due to tariff announcements and reaction to global developments.

Tata Motors saw pressure due to the JLR exposure to the US market. Do you think the stock’s correction is justified, and how should long-term investors look at it now?

Technically, I feel the stock has its immediate support at the Rs 660 mark and immediate resistance around the Rs 690 level. With the stock trading below its important moving averages, we feel that there might be some sideways consolidation in the stock price. Rs 660-690 being that range with Rs 700 being a major hurdle on the upper side. Investors should look at Tata Motors from a long-term investment perspective and focus on buying every dip from here on.

BSE surged on NSE’s plan to defer the expiry day from Monday. Do you think this will continue to support momentum in the stock, or is it already priced in?

I feel that the robust momentum in BSE is indicating overall strength in the stock and we expect that 5900 – 6000 odd targets should come in as this rally pulls up further. With the stock managing to close well above its important moving averages and witnessing a sharp surge in volumes, it can towards a new all-time high eventually so the bullishness should continue.

Where do you notice significant OI buildup in stocks. What does the F&O data tell you about where traders are positioning?

Traders are focusing on stocks like ONGC, NHPC, SAIL, NYKAA, Union Bank from a buyer’s perspective as these stocks witnessed a rise in open interest along with a rise in price. However on the short selling side, IDEA, IDFC FIRST, ZOMATO and IOC are indicating some negative momentum in their share prices as per OI data analytics.

On the expiry day, there was visible choppiness early on. How did the derivatives market handle the expiry, and what cues can we take for April series positioning?

I feel the expiry went rightly in a sideways consolidation range between 23,400 – 23,650 as we expected and coming ahead for April, I feel that with the volatility being absorbed and India VIX trading lower, we should see some good directional move on the upside as we hold above important moving averages. Two supports to watch out would be 23,400 and 23,000 on the important levels and 23,800 and 24,000 on the higher side. Trend should remain positive.

What’s your broader F&O strategy going forward—are we seeing long rollovers in key sectors, and is there any sector where short buildup is prominent?

I feel that sectorically, good roll-over is being seen in sectors like FMCG, Consumer Durable and Energy Index especially however short buildup is prominent on sectors like Nifty Media Index and IT stocks. So we should be ideally on the negative side for IT in the month of April I feel.

For Nifty and Bank Nifty, what are the key resistance and support levels to watch in the short term, and what is your preferred trading strategy?

For Nifty, I feel 23,400 is a key level below which 23,200 and 23,000 are the other two major support markets. On the higher side 23,800 and 24,000 look to be major resistance levels. Similarly, for Bank Nifty I feel 51,000 is an immediate support and 52,000 is an immediate resistance. A major support is placed at 50,000 and we feel that the preferred trading strategy at current levels would be to focus on buying the dips from here-on. Any 100-200 point decline on Nifty and 400-500 point decline in Bank Nifty will be a good time to go long on April Futures with minor risk on the downside.

Midcaps and smallcaps showed strength again. Do you think the broader market is regaining leadership, or should caution still prevail given valuations and liquidity risks?

I feel that with buying returning on most of the stocks, Midcap and Smallcap Index is now seen to be trading above its important moving averages and indicating good strength. With the indices trading above their 5,9 and 21 period exponential moving averages and showing bullishness, we might see a good upside move from current levels in the same. Technically, I feel that the broader market is regaining leadership and buying should resume from here on and take the two indices higher along with the overall market trend and direction.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)