Last week, our outlook for HDFC Bank was bearish, with expectations of further declines targeting the 1370-20 range. However, the downward momentum has slowed down, leading us to consider the possibility of a recovery attempt within the 1525-1460 range or even a complete recovery with a push above 1570. Such a recovery could reduce the stock’s heavy bearish bias. It’s important to note that HDFC Bank carries a 29% weightage in the Bank Nifty index, so its movement can significantly impact the index. Additionally, more than 50% of Bank Nifty constituents are currently trading above their 50-day moving averages, indicating the potential for new leaders to emerge. The Bank Nifty index appears poised for a bounce back, but we would be interested in initiating short positions on a pullback to 45,000. However, we anticipate a breakout beyond this level in the latter part of October.
Furthermore, foreign institutional investors (FIIs) have increased their short positions in index futures, constituting 27% of shorts in this segment among participants. The short-to-long proportion of FII positions has reached 70%, a historically high figure. However, it’s essential to consider these figures in the context of the total open interest of shorts, which is still lower than what was observed at the beginning of September. Notably, we saw a similar extreme in short positions in late July, followed by an uptrend. October has historically been a favorable month for Nifty, and the high level of shorts sets up an ideal scenario for potential reversals. In the case of Nifty, the 19,420-19,320 range presents a hurdle before reaching 18,600, a level hinted at by last week’s sharp decline. However, an inside bar observed on Friday suggests the possibility of a revival and a move beyond 20,000 if a close above 19,780 is achieved. With the Sensex, the resistance at 66,100 resembles rejection trades, but if it doesn’t slide below 65,700, we anticipate a return to a sustainable uptrend, with an initial target at 66,500.
Similar to the indices, the USDINR pair faced challenges last week, particularly in surpassing the 83.27-83.44 barrier. The subsequent pullback found support around the key level of 82.78, maintaining a neutral bias. While there were some upward movements, none gathered enough momentum. As we start the week, we expect fluctuations but maintain a positive bias as long as the pair remains above 82.98.
