F&O Outlook: Nifty may slide down to 2,500

Futures & Options (F&O) traders have hinted that the market is in the bear grip. They built up of fresh short positions in the Nifty March futures and bought 2,500 and 2,600 put options heavily.
Key index heavyweights such as Reliance Industries (RIL), State Bank of India (SBI), ICICI Bank, Tata Steel, Reliance Infrastructure, DLF and NTPC also closed at the day’s low with each of the futures adding open interest (OI), indicating fresh short build-up.

The Nifty March futures added an open interest of 3.32 million shares during the intraday play and carried forward 1.50 million shares at the close of the day’s trade, indicating fresh short build-up and unwinding of long positions. The F&O traders added an OI of 1.18 million shares in 2,700 call options and unwound short positions at 2,700 put options, indicating that the Nifty has built up resistance at 2,700.

The 2,600 put options added an OI of 1.48 million shares and 2,500 put options added 1.83 million shares. These puts together account for 40 per cent of the total OI in put options, indicating that the F&O traders expect the Nifty to trade below 2,500 going forward.

The downtrend is likely to accelerate further and we may see the benchmark indices below the October 27 lows in the near future. The BSE Sensex may see 300 points correction from the current level of 8,600, while the Nifty could go down to 2,500 from today’s close of 2,675.

According to the technical analyst of Ambit Capital, an upside is expected at any point of time if the Nifty manages to close above 2,700.

Technical studies by JM Financials indicate that the worst of the bear market is yet to come. In the next few weeks, the market may see the benchmark indices not only testing the October 2008 lows, but also breaking them to fall further.

While the Sensex may touch a low of 7,000, the Nifty may hit 2,050, as per the JM Financials studies.