Decline in F&O rollovers hints at D-Street caution

Mumbai: Traders carried forward fewer positions to the June derivatives series as the outlook remains hazy amid rising interest rates, inflation and persistent selling by overseas investors.

According to the data, about 78.86% of Nifty positions were carried forward by the end of the May derivatives series expiry on Thursday, lower than the three-month average of 79.2%.

"It is a light market now as short sellers are not in position to carry forward their bests. The risk is high for them to remain short at such low levels, positions in June futures are still bearish," said Rajesh Palviya, head-technicals and derivatives at Axis Securities.

Short covering on Thursday helped the Nifty and Sensex recover from early losses and snap the three-day losing run. The Nifty gained 144.35 points, or 0.9%, to close at 16,170.15. The Sensex rose 503 points, or 0.94%, to close at 54,252.53. The Nifty fell 6.23% in the May derivatives series.

Asian markets on Thursday struggled for direction after the minutes of the US Federal Reserve's May policy meeting released Wednesday night showed the central bank is prepared to raise rates faster than what the market had anticipated to contain inflation.

The outlook is looking bearish and it remains a sell-on-rally market, said Abhilash Pagaria, head of Edelweiss Alternative and Quantitative Research. "Traders have carried positions forward but there is no conviction for a big rebound as foreign investors are selling continuously since October 2021," said Pagaria.

Derivative analysts said 16,400 remains a strong hurdle for the Nifty in the June series.

"The upside is capped in the Nifty as overseas investors are selling, volatility is higher and there is sustained call writing," said Chandan Taparia, derivative analyst at Motilal Oswal.

Momentum will also be capped as the IT sector is underperforming due to weakness in Nasdaq, said Taparia.

Pagaria of Edelweiss said 15,700 is a strong support and on the upside once the Nifty touches 16,400-16,450 one should add fresh short positions at those levels.