In an interview to CNBC-TV18, Amit Gupta of ICICI Direct shared outlook on the F&O market and recommendations on various stocks.
Below is a verbatim transcript of the interview:
Q: The big action was in your market yesterday. Do you get the sense that there is a bit more in terms of short covering left for the market to go?
A: One immediate positive is the closure of the index future positions by the foreign institutional investors (FIIs) around 10 percent. If you look at the whole series, 5,000 crore of net sell was there in the index futures and they have closed 10 percent of it.
As per the FIIs closure, yes, it is positive. We assume 5,630 was a critical level for the market before. We had an opinion that once market breaches that level then Nifty is moving towards 5,400. Around 5,477 we saw very high volumes.
If you look at intraday, in the last couple of 2-3 months we did not see that kind of volumes coming up and from thereon, despite the negative news, market was not giving up. In fact this particular rally started when we had a bad news from the global markets and they were down. The shorts clearly are stuck up, at least till expiry you can have some stock specific short covering.
Another factor one can look at is the Call writing, which was very huge. When market was forming a little bit higher bottoms around 5,500, we saw the put-call-ratio (PCR) open interest (OI) was declining. That was happening because people were more shorting the Call options. If you look at the net change in OI, throughout the series till one-two days before it was the highest in 5,500 Call and the market was trading above that level. So, from there only the stage was set for the short covering and these Call writers were stuck up.
Right now, if you look at the outstanding positions, it is highest at 5,600 Put, which is close to our critical level again of 5,630 and on the higher side we are trading above 5,700 Call option.
My sense is that we are going to see some stock specific recovery. If Nifty is not going to move beyond 5,800 then also some oversold stocks may start recovering. If I have to take the final opinion then till we are not closing below 5,630, we will remain positive for the time being at least till this expiry.
Q: What are your expectations from the Bank Nifty for the rest of this series?
A: Bank Nifty is definitely outperforming Nifty in the last four-five sessions. We have looked at the ratio of Bank Nifty to Nifty. It has moved up very sharply from 2 to 2.08. It has happened on the back of the outperformance by both the segments.
You look at State Bank of India (SBI), from Rs 2,000 it has moved to Rs 2,180 now. The private banking space also has outperformed.
My sense is this particular outperformance possibly may continue because Infosys has given up possibly for one-two months perspective. So in that scenario, if index has to remain here, consolidate here then the banking stocks should start outperforming little bit more. The largecaps have already outperformed. It maybe the midcaps, which can outperform from hereon.
You look at the midcap public sector undertaking (PSU) space, the Syndicate Bank or the Oriental Bank of Commerce (OBC). For the last two-three sessions we have seen that the OI is getting closed continuously for these two banks. You can see some positive vibes at least till expiry in these two stocks. OBC, somewhere around Rs 252 has a good support. From thereon Rs 275 can be tested. Rs 112 is a good support for Syndicate Bank and Rs 119 can be tested on the higher side.
So, we are looking for some stock picking in the midcap right now because the largecaps have done their part to a larger extent.
Q: You have a strategy on Hero Motocorp this morning?
A: The reason behind picking Hero Motocorp is if you look at the volumes in the last 7-8 sessions, it was hitting Rs 1,430. However, when we look at the daily average volume, it was much higher than the daily average volume of the last three months. The February 2011 low was around Rs 1,400. So I assume that from those lows only it has started reverting.
The stock future OI in terms of short bias is high. So, there is more chance of short covering in the stock. On the higher side it can move upto Rs 1,560-1,570 also. You can buy the stock, keep a stop loss around the same level of Rs 1,430. So on any decline this maybe a buy till this expiry.
Q: Aside from the banks, any specific heavyweight on which you saw a lot of either short covering or longs being created?
A: One can look at cement space. It has remained a laggard for the last three-four months continuously. Despite when the market was performing, it was not performing. The short additions were definitely there.
However, in the last five-six sessions ACC, in the cement space, is continuously outperforming Nifty. It made a low of Rs 1,110 when the market was around 5,550. Afterwards, market dipped to 5,480. We did not see that decline in ACC after that. So, there maybe a chance of some short covering in the stock. It can move up to Rs 1,240-1,260 kind of levels. So, this maybe a buy till expiry again.