Hemant Thukral, national head-derivative desk, Aditya Birla Money feels that one should keep an eye on the India volatility index (VIX) to understand the movement of Nifty.
"India VIX is now at a new 52-week low. Though the bias might be negative, but it is signaling that there is no fresh short happening. I would be looking at this VIX number very carefully, because if it doesn’t move that would clearly signal that market still is in a range bound mode," he explained.
He doesn't expect Nifty to break 5,135 levels unless there is major negative news pouring in from global or local markets. So, he recommends selling 5,000 put. "Now the premium has come down to Rs 42-43, I think that’s a good bet for the market to sell, but obviously you have to keep a stop loss at 5,135."
On the upside, the Nifty remains capped between 5,350-5,400, he added.
Below is the edited transcript of Thukral’s interview with CNBC-TV18. Also watch the accompanying video.
Q: How are you calling it, because it’s looking more and more like the action is getting concentrated in that 5000-5200 zone?
A: India VIX is now at a new 52-week low. Though the bias might be negative, but it is signaling that there is no fresh short happening. There is no panic at all in the market, otherwise VIX would have reacted in a different manner. So, the market is falling down because of unwinding of positions and lack of FII participation.
I still feel that market is well and secured till it holds above 5,135. The way the put writers are active at 5,100-5,000, I don’t see it breaking unless and until there is very big negative news either in global or local markets, which we cannot foresee currently. I don’t see this level breaking up very easily. We have been recommending selling 5,000 put.
Now the premium has come down to 42-43, I think that’s a good bet for the market to sell, but obviously you have to keep a stop loss at 5,135. On the upside again, the market remains capped between 5,350-5,400. I would be looking at this VIX number very carefully, because if it doesn’t move that would clearly signal that market still is in a range bound mode. It may continue in that range bound with individual stock specific actions.
Q: You have a call on Infosys for the morning, but that stock has not managed to recover from Rs 2,400 level. How do you see that?
A: we have particularly chosen Infosys, because this scrip has seen lot of shorts being rolled to the next series. We already know that TCS has shown a very sharp run up and it’s maintaining its run up along with HCL Tech. CNX-IT for me has reversed from very crucial support levels.
If CNX-IT has to maintain this run up unless and until TCS continues to outperform which I expect it to do, I am expecting some sort of short covering to continue in Infosys. First signs came on Friday and Saturday. Saturday though a truncated session, but some signs definitely creeped in where Infosys did saw open interest decline. I am expecting this open interest decline to continue and some more short covering which will take this stock towards Rs 2,470.
I am not saying that Infosys has turned strong, but there are very big chances that it can see that short covering coming in. That’s why we are recommending to buy a 2,500 call the premium should Rs 27-29 and the stock target is Rs 2,470. But one has to maintain a stop loss of Rs 2,350 because for some reasons if Infosys goes below Rs 2,350 then it turns weak again.
Q: Your trading call on Arvind?
A: That’s another textile midcap counter, which has seen lot of long open interest being built up, so definitely some buying is coming in. Importantly, Arvind has closed above Rs 83-84 mark, which was acting as a stiff resistance for it. Till it holds above Rs 82.50, that’s the stop loss one should keep and there are chances that stock can outperform its peers and can move up towards Rs 88-89. One should buy Arvind at every dip now.
Q: What exactly are you seeing on some of these infrastructure and real estate names? That space is seeing the greatest pressure in the cash market.
A: I think all are high-beta spaces, so there have been short positions. If you check the infrastructure lot, they started the last series with a bang. They moved up and saw profit booking. Now they are under tremendous pressure of short positions.
You will find some rates where short covering will start, but I think at every higher level now you will see people stuck up trying to cover their position. So they will face selling pressure coming in. I would not be buying them even at dips. In fact I would be looking to sell them provided they move up by 8-10% due to short covering. I belong to the camp, which will be selling these stocks at every rise rather than looking for opportunity to buy.