April F&O series: Nifty nears a tactical bottom, 4–4.5% rebound achievable, says Nuvama

Nuvama Alternative & Quantitative Research in a fresh note said Nifty futures rollovers stood at 78 per cent compared with 70 per cent in the last three series, with Nifty futures starting April series at higher open interest (OI) base of Rs 51,900 crore (2.32 crore shares) against an OI of Rs 36,300 crore (1.43 crore shares) seen at the start of March series. On the expiry day, the roll cost for Nifty was at around 35 bps which was close to the previous day’s 46-48 bps, the brokerage said.

Nuvama said while headline risks, particularly geopolitical developments, could still drive intermittent volatility, the risk-reward now appears favourably skewed for the bulls for a tactical bounce. Downside for Nifty seems relatively contained around the 21,800 zone, whereas a rebound of 4-4.5 per cent-plus looks achievable, it said. 

Nifty: Tactical bottom ahead?

Nuvama said if the global war scenario escalates meaningfully, market direction becomes highly unpredictable and outcomes could diverge materially from current expectations," Nuvama said.

It said despite elevated global uncertainties and the sharp drawdown through March, the weight of evidence increasingly suggests that markets are approaching a tactical bottom. "Momentum indicators such as RSI drifting toward the 30 zone indicate oversold conditions, while April seasonality remains supportive with 3.5 per cent average returns and a strong 80 per cent hit ratio historically. Positioning data across segments also reflects a meaningful unwind," it said.

On the ground, it said businesses are still assessing the evolving impact, and the upcoming results season should provide greater clarity through management commentary. Until then, while volatility may persist, the market appears closer to tactical downside exhaustion than the beginning of a fresh leg lower, Nuvama said.

"If any meaningful weakness is observed in private banks then should be used as an opportunity to accumulate them from positional perspective," it said.

Market-wide positions Nuvama said market-wide futures open interest at the start of April series stands at Rs 5.08 lakh crore compared with Rs 5.28 lakh crore at the start of March series. 

Market-wide rollovers stood at 91 per cent, higher than the 3-month average of 90 per cent. Stock futures rollovers, it said, stood at 93 per cent, higher than the average rollovers of last three series at 92 per cent. 

FII, HNI positions Nuvama said FIIs have significantly added index shorts while they reduced single stock futures (SSF) Longs. In the case of index, FIIs' net shorts stood at 2,64,000 contracts against 1,06,000 short contracts at the start of March series. In the case of SSF, FIIs' net longs stood at 9,83,000 contracts against 1,234,000 net Long contracts at the start of March series.

In the case of clients category (HNI & Retail), it has added longs in index while reducing SSF longs.

"FIIs added Index shorts (264k vs 106k), while Clients added Index longs (181k vs 78k). In SSFs, FIIs reduced longs (983k vs 1,234k) and Clients trimmed longs slightly (2,360k vs 2,439k), reflecting cautious positioning at the stock level," it said.