In an interview to CNBC-TV18 Karun Mutha of HSBC Invest Direct shared his readings on the Futures and Options market.
Below is the verbtatim transcript of his interview on CNBC-TV18
Q: How are you positioning yourself for the last few days of this series? How do you think you are headed for expiry?
A: The Foreign Institutional Investors (FIIs) in the past few trading sessions have been sellers on the index Futures. However, if you closely watch the open interest (OI) and analyse the data, it was clearly long unwinding which was witnessed.
The beginning of the series saw some good amount of short built up, we did not have larger positions on the long side by the FIIs and till date we have 50,000 shares or contracts as additions to the Nifty Futures on the short side. That is not a large position on the short side which was seen in the month of February or the February expiry.
Moreover, the volatility index after forming a base of 12.85 percent, we have seen it actually touching a high of 17.8-18 percent and now subsidising at around 16.51 percent. We will see the volatility index rising and hence the premiums though at the end of an expiry, will not fade out so sharply.
5,600 continues to be a very good support for the moment as we have seen a large section of the Puts being built up out there. Hence we presume that a lot of activity will still be there till we breakdown on 5,600 and this should be a good opportunity to accumulate some positions on the long side. It would be a good area to buy as we were also approaching the 200 day moving average around those levels on the Nifty.
Around those levels we may probably see a minor rally to around 5,800, which is again a decent rally of 200 points on the Nifty and not to witness the fact that there could be some short covering also which may propel it further.
I would largely accumulate on these lower sides say around 5,600 and that would be the area where in long positions can be built up and probably a mild rally to 5800 can be used to exit large positions.
A: In the past few trading sessions, we had some bad news flows for the whole sector and we saw a sharp correction happening in most of the frontline private sector as well as Public Sector Undertaking (PSU) banking. Now in the recent fall, we have identified that the shorts that were built up have not really been such large amount of shorts and the price corrections were not significant. In fact the longs have been holding on particularly the private sector banks.
We find there is an opportunity again in any significant correction on most of the private sector banks and they should be accumulated. These are the highest beta stocks and if the Nifty is likely to move up from 5,600 then these have the best opportunity to move up. Particularly the private sector banks, which have seen resilience even in yesterday’s fall, are some of the best picks to go on the long side.
Q: A word on the midcaps and whether there is anything that is looking like a clear shorting candidate there?
A: Midcap space is a clear avoid at the moment. Go long on large caps; IT and banking seems to be the clear winner. Perhaps the Nifty long synthetic Futures strategy would clearly play well, as we expect the volatility index to move on from here.
So, buying of 5700 Call with a selling of 5600 Put would be an appropriate strategy to play on from here.