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Nifty: Positive bias remains with support near 16400...

* The Nifty gained almost 5.5% in the August series, triggered by continued up move seen in the Technology space. Also recovery seen in banking and FMCG space helped Nifty to scale new highs. On the other hand, broader markets have under performed Nifty and both midcap and small cap indices closed the series on a negative note where small cap lost almost 5% during the series.

* Going ahead, we believe Nifty may trade positive with support remains at 16400 levels. While the major option concentration remains at ATM 16600 Put and 16700 Call suggesting some range bound bias in the short term. In such a scenario, declines remains a buying opportunity and only a move below 16400 may provide some extended weakness.

* From the rollover perspective, Nifty has started the September series with the highest OI seen since Feb 2020 while basis has declined significantly to just 10 points suggesting attempted shorts. Meanwhile FIIs net long positions also declined from a month on month perspective suggesting some caution at higher levels. However, we remain positive till Nifty holds above 16400 levels.

* The volatility index did not move much despite settlement and closed the week near 13 levels. It seems like Volatility may inch up marginally from here onwards but we believe that any change in bias should be warranted only above 15 levels for equities. The recent uptick in volatility can be attributed to ongoing talks about Fed tapering due to improved economic conditions.

Bank Nifty: Positive bias should continue above 34800 levels…

* Banking index reverted sharply from lows but remained below 36000 levels. However, during the week it gained almost 2% as private sector heavyweights were the major gainers. Going ahead, we believe that recent lows near 34800 should remain important support and till these levels are held, continued up move towards 36500 can not be ruled out.

* From the rollover perspective, the open interest in banking index has declined sharply to 4 month lows at inception of the series as it failed to perform inline with the market. We believe fresh accumulation in the banking space should trigger the directional move which should help banking index to move out of the prevailing range.

* From the options front, highest open interest is placed at ATM 35500 Put strike while Call option concentration is visible across the OTM strikes. Hence, fresh up move can not be ruled out due to short covering among Call strikes above 35800 levels.

* The price ratio of Bank Nifty/Nifty remains near lows of 2.13 as it failed to perform in line with the market. However, the current price ratio is one of the lowest in current year and further under performance may not be seen. We believe sectoral rotation should help banking space to start performing once again.

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