No expiry offers any indication at what level the settlement will take place and the current expiry witnessed an increase in stock-specific activity, says Siddharth Bhamre of Angel Broking.
In an interview to CNBC-TV18, Bhamre advises investors to go long on the Bank Nifty and banking stocks on the surge in FII interest in the segment and on negative sentiment being already priced in.
Below is the edited transcript of the interview on CNBC-TV18
Q: At what level do you expect the Nifty to settle?
A: In no expiry is there confidence at what level the settlement would take place. This expiry witnessed more stock-specific activity rather than the Nifty. Data from the FII and Options segments did not point to any expectation that the market would be around 6,100 and we expected a huge amount of correction in Options the segment from 6,100.
The unwinding in calls was never seen at 6,100 which turned out to be the level of resistance. A lot of investors were seen writing the 6,000 Put Option when market was nearing 6,100 and that time FIIs were not very active in Options which clearly suggests that the 6,000 Put option was being written by weak hands.
Over one lakh contracts were built-up in the 6000 Call. However, we decided not to conduct any activity in 6000 Call option as we were expecting the market to close somewhere near those levels. But that strategy failed to come off as the market has come down further.
A retrospective analysis reveals that on July 18 there was huge buying of options done by FIIs with the maximum built-up of more than Rs 40,000 crore in the 6,000 Put Option.
It is easier to analyse the situation when the markets have corrected and when FIIs have bought the 6000 Put Option. Though FIIs again ended up making money, we did not expect the market to fall like this today. Despite the discussion about the underperformance of the Bank Nifty and the adverse impact of RBI’s measures, in the last three trading sessions, FIIs have gone long on index futures and have built the maximum number of positions on the Bank Nifty.
Though the Bank Nifty dipped and earned the ire of trader and investor alike, the banking index has outperformed.
Positional traders and investors could go long on the Nifty and the Bank Nifty for the next two-to-three trading sessions.
Q: There was some amount of long positions built up in the August series on the Bank Nifty. What is your strategy for the Bank Nifty in the August series?
A: I don't think anybody on the street is expecting a rate-cut by any means. So the negativity has already been priced-in and that is the reason for the significant correction in the index. There has been a huge rise in FII interest in the Bank Nifty. So, I suggest investors don’t short the Bank Nifty or even take short positions on banks because the negativity is in the price and the stocks are short-heavy.
I would take some contra longs and go long on ICICI Bank around Rs 920-940 along with HDFC Bank and PSU banks such as State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda. Now these long positions are not from a 10-15 days’ perspective. Since any trend that occurs on expiry day is not a continuation but an adjustment, I suggest investors ignore the dip in the Bank Nifty and go long in banking stocks.