Amit Gupta of ICICI Direct suggests going short on the Nifty with a stop loss at 6040. His target on the downside is around 5820-5840.
He expects IT to outperform the Nifty ahead. “Those looking to short the Nifty should buy Infosys for a good hedge,” he told CNBC-TV18 in an interview.
“Nifty is going to face problem around 5,980-6,040, so long Infosys at the current level because it seems to have a limited downsides. Short Nifty as limited upside is seen,” he says.
Below is a verbatim transcript:
Q: You guys were also quite bullish about the February series. Have any stop losses got triggered after the grind down of the last few days?
A: When Nifty was trading between 6,000 and 6,100, that time we were looking at the Volume Weighted Average Price (VWAP) of that particular series, which was 6,040. Finally, we closed below that level and continuously trading below this. Now, we are in the short side and we have kept a stop loss at 6,040. We are looking for any upside in the market to go short. Now there are two or three reasons, which are supporting this statement.
In foreign institutional investors (FIIs) data, we have seen that index Futures have shorted from February 1 onwards, within 4 or 5 sessions 1,900 crore of selling we have seen in index Futures. They have added 32,000 contracts. Also, if you look at the Nifty premium, it came down from Rs 39 to almost Rs 9 within 4 or 5 sessions. I think only the strong hands can do that in the market in the first week of the series. If you look at last 6-7 months, the premium has not declined like this in first week.
Another thing is that if you look at the index Options, they have been continuously buying with an average daily buying of 1,000 crore. Mostly, we have seen that 5700 Put have seen most of the addition. Now the worry is the Put-call ratio open interest (PCROI) of 6,000 strike is continuously decreasing. We have seen it was above 1 and now it is around 0.9 and slowly the open interest of these near-the-money strikes is going to shift on the lower side. At 5,900, we have seen the Puts are standing somewhere around.
These are all the stuck up positions and there maybe some cascading effects towards the lower side. My overall sense is even if Nifty is moving up, 5,980-6,040 is going to be a very stiff range because this is where the premium in the series in the first week has declined and the FIIs have added the shorts. So on the higher side, I will remain short on the market and I will look for a target of around 5,820-5,840 on the lower side.
Q: You think information technology (IT) has a good chance of outperforming the index now, the Nifty?
A: Yes, it seems like that. The currency has also bounced from close to 53/USD to the higher levels. Look at Infosys; I think what has happened in the stock once the breakout came from 23-28, it has not come down even beyond 50 points and the shorts are clearly stuck up. Look at the open interest position, 50 percent of positions have already been closed with a short bias and the last rollovers, we did not see anything significant happening that means the people who are really reluctant to roll the short positions into the current series.
So, whatever has come, they will be quite vulnerable when the stock is not coming down. Post Cognizant results, we saw it closed above seven day moving average. Therefore, closing above this in this particular series for the first time could be the first trigger that the stock is moving up.
If somebody wants to go short in Nifty then this could be one stock that can provide good hedge or one should look the reverse way around, go long in Infosys or hedge it by going short in Nifty.
I think because Nifty is going to face problem around 5,980-6,040, so go long in Infosys at the current level because it seems to have a limited downsides and go short in Nifty because it seems to have the limited upside. So, it demands for a good pair strategy, buy Infosys and short Nifty right now.
A: Cipla may fall prey to some long liquidation because it has seen lot of build up, around 10-15 percent addition in the last couple of weeks and in the current series and when it is not holding around for Rs 400 levels, one can see some more long liquidation. It may fall by 3-4 percent further.
Bank of Baroda is a clear case of some short build up because after Punjab National Bank (PNB) results we had seen some long build up that time but immediately when the stock disappointed with the results, from there initially the long liquidation came and afterwards there was 5-6 percent of immediate short addition we saw in the stock. So far it has not been able to sustain above those levels. However, there is a possibility that Bank of Baroda may slide further and till the State Bank of India's results announcement on 13 or 14 February, the stock may remain a laggard only.