Aug 05, 2013 12:19 PM IST | Source: CNBC-TV18

5680 key downside for Nifty; short cover now: ICICI Direct

Amit Gupta, Head- Derivatives -ICICI Direct told CNBC-TV18 that On the downside Nifty could test 5680 and 5800 on the higher side. He recommends short covering

In an interview to CNBC-TV18, Amit Gupta, head- Derivatives of ICICI Direct spoke about the outlook for the F&O market. On the downside Nifty could test 5680 and 5800 on the higher side, he said. He recommends short covering.

Also read: Indian stock mkt close to exiting elite trillion-USD club

Below is the verbatim transcript of his interview to CNBC-TV18

Q: What is your sense now? After the close below 5700 on the Nifty how are you going to approach it this week?

A: I think 5800 is going to remain very critical level. If you see the starting of the series we had seen that the PCR-OI at 5800 strike was almost more than three. Now it is close to one. The reason being that 5800 Put was the highest in the starting of the series and now continuously we are seeing the Put Open Interests (OI) are getting and Call OI is increasing at this level. That is why I think this has become a very critical level. Till we don’t move beyond this meaningful short covering may not be seen.

Last week, the Nifty came down and stock specific pain was quite high. If one looks at the breadth of the market it was quite negative for all the five sessions. There was some movement in Wednesday's session, but the breadth remained negative. I think 5680 on the downside is one intermediate support which is the 80 percent retracement of the overall move from 5560-6100.

So, if in today's sessions or tomorrow again we start trading below 5680 there maybe a scenario that the stock specific pain maybe seen and you will see the private banking, capital goods kind of sectors start giving up. I think the stocks of these sectors are under pain and if Nifty is not able to breach 5800 you are going to see that pain continue.

If one looks from the Foreign Institutional Investors (FII) point of view they are still cautious. In the last week they have bought around Rs 3,500 crore of index options. The volatility is rising. We saw it moved up from 17 to almost more than 20 levels. I think till it remains above 20 the problem remains for the equity market. Along with this the accumulation is seen in Out of The Money (OTM) Put Options. If you look at 5300 strikes in Put Options we have seen the OI is rising there and this volatility is rising. That means the buying is happening.

So, I think it maybe a hedge into the cash portfolios they have, but they are not buying in cash, that is the problem. For one and half months we have seen that FIIs are not buying. They have sold around Rs 16,000-17,000 crore in cash. Nifty Futures premium around 40-42 is still intact and the market is in jitters.

So, whenever we see such a high premium market really finds problem to move up immediately. I will take two levels, 5680 on the downside below which I think the selling pressure is likely to aggravate and on the higher side beyond 5800 only I will play for any short covering.

Q: How do you approach Wipro now that had a good move last week?

A: I am positive on the stock. If you look at the OI closure in any of the IT stocks in the last couple of weeks, it has been quite high in Wipro and it is clearly short covering. Nifty has come down from 6100 to 5700. It has gone up from Rs 400-440, so that shows how it has outperformed the index.

I think Rs 470 can be the target that one can look at. Buy at dips. Rs 430-435 levels can also be seen to accumulate this stock. Keep a stop loss below Rs 410, because we have seen some delivery based buying happening around Rs 400-410.

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