Nifty 50: A Tug of War Between Reliance & HDFC Bank!

The benchmark Nifty 50 index seems to have been stuck in a range. Although there’s no denying that the overall trend is still negative, the kind of support it is taking from the last two sessions is indicating investors’ interest at these lower levels.

It seems like the downtrend is now halting. The primary reason could be the 5 consecutive red weekly closes which has likely made the index oversold. As of Tuesday, the index is trading in the green for the week so far and might close this way, although a very sharp rally is not yet expected.

The main reason for the index’s sideways movement is the tug-of-war that’s been going on between its two highest-weighted stocks - HDFC Bank (NS: HDBK ) (14.02%) and Reliance Industries (NS: RELI ) (9.76%). Yes, after the merger of HDFC with HDFC Bank and the demerger of Jio Financial Services Ltd (NS: JIOF ) from Reliance Industries, HDFC Bank has become the highest-weighted constituent of Nifty 50.

Reliance Industries has been falling continuously since the last 4 sessions and the next support is still some INR 50 down. Even its AGM couldn’t help instill enthusiasm in investors. On the other hand, HDFC Bank has already stopped its fall and has been rising from the last two sessions. In fact, the daily chart of HDFC Bank is looking quite bullish as it broke above its falling trendline resistance today.

This inverse movement is keeping the index from going nowhere, a perfect scenario for index options sellers. An options selling strategy I analyzed in the Nifty 50 index for the 7 September 2023 expiry (link at the bottom) is still going great.

As the index is taking strong support from lower levels, traders can also think of short selling in put options (with a hedge) to gain from this lackluster movement. The level of 19,200 is now a good demand zone and very aggressive short selling should be given a second thought, as long as Nifty 50 is above this support.