In an interview to CNBC-TV18, Amit Trivedi, Co-Founder of Investworks.in shared his outlook on the market.
Below is a verbatim transcript of the interview:
Q: Do you think the Nifty is coming to significant resistance or do you see more upside in the May series for the index?
A: Global markets are consolidating at these levels moving up one day, down the other day. Predominantly because of some data, which is positive in US, you have some softening in manufacturing, which is in fact an international trend. If you look at Europe, China or even India, manufacturing is slowing down globally.
What is keeping the markets up is the Central Bank action, which should continue. For example, there is expectation of a rate cut by European Central Bank (ECB) today, by Reserve Bank of India (RBI) tomorrow and Bank of Australia in the next couple of months and so on and so forth. Central Bank action should keep markets slightly up, which is liquidity. So, we expect Nifty to be around 5,950 to 6,000 levels for the end of May series based on our calculations.
Q: What are you seeing on the charts of the big banks or even the Bank Nifty now?
A: Banks have rallied quite a bit in expectation of a rate cut. In fact if we look at fixed income which is the bond market that is signaling a 25 bps rate cut while you have equities which have rallied considering a 50 bps rate cut.
As we are discussing, we feel that there could be a 25 bps rate cut tomorrow but more importantly the tone that the RBI governor sets in would lead to market movements from hereon.
So, banks like State Bank of India (SBI) and all should consolidate after this run up. We do not expect huge corrections in the market because of liquidity flow that is fueling this particular rally. That should continue for the next month or couple of months or so.
For example, for SBI the futures are at a discount to the stock and we are recommending traders to buy 2,200 strike Calls at around Rs 113 and sell two 2,400 strike Calls. There is an initial investment of Rs 40 in that trade and you make profit if SBI remains at any value between Rs 2,240 and Rs 2,560, which is a pretty range. If the stock remains at Rs 2,300, you will make around Rs 60 profit in the trade.
Q: It seems like the auto stocks will start on a back foot today because of the sales numbers but you have a strategy on Tata Motors for the day?
A: Auto stocks in expectation of a rate cut have moved. For example, Tata Motors has moved around 15 percent from Rs 260 levels to Rs 300 levels. We think the stock should consolidate at these levels in this particular series. Traders can sell 350 strike Call of Tata Motors at around Rs 1-1.2. So there is an initial inflow of Rs 1,200 in this particular strategy.
If Tata Motors remains any value less than Rs 350 which is approximately 17-18 percent from current levels, you will make Rs 1,200 on a margin deployed of around Rs 35,000. It translates to around 3.5 percent returns for the trader.
Q: You have a call on Larsen and Toubro (L&T) for the day?
A: L&T has rallied from around Rs 1,350 levels to around Rs 1,510-1,530 levels and is consolidating at current levels of Rs 1,520. We think there could be some downside in the stock because of the results that may come out in the next week or so.
We are advising traders to buy 1,500 Puts of L&T and sell 1,450 and 1,400 Puts, so it is a Put ladder strategy on L&T, which will be profitable. There is Rs 2 invested in this particular strategy and it will be profitable if L&T remains between Rs 1,352 and Rs 1,498. Even if L&T remains at current levels, over the next few days one can just unwind 1,500 and 1,450 Puts at a profit and then leave the 1,400 Put to expire.