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Covering expected in banking sector in coming weekly expiry

Commentary:The sharp sell-off continued in banking stocks as the index fell almost 16% from the high. The Bank Nifty started the December series with higher OI base as most shorts were rolled in the December series. However, Bank Nifty PCR ratio, which remained muted since mid-November, has reverted and is near 1.02 compared to lows of 0.58.

Major Option activity (Weekly):

Major Call OI change in today’s session: 36000 (-1.75 lakh), 36500 (4.5 lakh) and 37000 (6.5 lakh).

Major Put OI change in today’s session: 36000 (17.9 lakh) and 35900 (7.2 lakh).

Outlook:Today, the Bank Nifty managed to move and sustain above its sizeable Call base of 36000 where only marginal unwinding was observed. Most banking stocks are near their highest Put bases indicating some reversal is expected in these stocks. From the current levels, we like HDFC Bank, IndusInd Bank, Axis Bank and SBI whereas supportive actions are expected from others as well. As the PCR ratio has started showing sign of recovery, we feel short covering may take place in the banking space where major shorts were formed. Hence, we feel the index should head towards 37000 levels in a day or two.