Theoretically derivatives(F&O) are supposed to move based on the underlying equity price, but it is opposite in real life. F&O positions on a stock drives the underlying stock value and hence makes sense to track the OI to predict the stock moves.
Some of the logic that people tracking OI (open interest) follow is that:
- If an upmove/downmove happens with a significant increase in open interest, that means new people have jumped in and hence the price move will probably continue in the same direction
- If an upmove/downmove happens without an OI jump, probability is that it might just wane down, since it was more about existing Open position winding down, rather than new ones adding.
Hope this helps