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Nifty: Sustainability above 15600 crucial in settlement week

* The Nifty lost less than 1% last week after gains of four consecutive weeks amid some profit booking in the midcap and small cap space. The midcap and small cap indices lost 2% and 3%, respectively, during the week. Apart from FMCG and technology stocks, rest of the sectors ended the week in the red where high beta stocks from metals and realty space witnessed significant pressure

* On the options front, the highest option concentration is placed at 15800 Call and 15500 Put strikes. The Call OI base is close to 48 lakh shares, which should act as immediate hurdle for the Nifty during the week. Similarly Put base at 15500 and 15600 strike is almost equal. We believe a fresh move below 15600 may result in extended profit booking towards 15200 in the settlement week

* In the first three weeks of the June series, only technology and FMCG heavyweights were able to hold the markets against the relative weakness seen in the banking heavyweights. While banking stocks continue to remain below their Call bases, technology stocks have moved away significantly. Going ahead, we expect a broad based movement while 15600 levels should be closely watched for the upward bias to continue during settlement 

* Despite the intraday volatility seen in global markets, the volatility index remained subdued and ended the week below 15 levels once again. We expect some uptick in volatility during the settlement week. However, till it holds below 16 levels, short positions should be avoided

Bank Nifty: OTM Call writing likely to keep Bank Nifty under pressure

* For a second week in a row, the Bank Nifty ended negative as private players failed to gauge any noticeable momentum. Most private banks are trading near their Call bases, which is likely to keep pressure intact in private banks

* Recent glitches in HDFC Bank software and no clarification by the RBI about lifting of ban are expected to keep heavyweights under pressure. Among PSU banks, apart from Bank of Baroda, most stocks saw closure of long positions

* In the past few weeks, aggressive Call writing was observed in OTM strikes. As of last Friday, intraday volatility remained high and the Bank Nifty managed to recover most of its losses. There was no major price appreciation of OTM Calls, which ended almost 30% lower even when the Bank Nifty ended almost flat. We feel Call writing activity is intact in the Bank Nifty and major hurdle is at 35500 levels

* The Bank Nifty/Nifty price ratio has slipped below its support of 2.20 levels. We feel underperformance in the Bank Nifty should continue and, going ahead, it can move towards levels of 33000 in the expiry week

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