The April series was volatile for the market, but it managed to trade higher through most of the month to finish off flat. Due to this, VK Sharma of HDFC Securities tells CNBC-TV18 that the Nifty could be weaker in May.
On the positive side, Nifty open interest is at a four month low prompting Sharma to say there is not much room on the downside from here. “We expect that the market is unlikely to break a level of 4950 on the lower side and could work its way up on the higher side,” he said.
On the upside, Sharma sees the first level of resistance kicking in at 5240 and then 5370 later on. “If it closes above that, then that will be a sea change in the sentiment,” he said.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: How are you approaching the May series now after the kind of expiry that you saw yesterday and how the April series panned out for the Nifty?
A: I think the Nifty was able to hold onto its support level of 5135, and barring the last day close it held higher or at around 5200 levels. May could be weaker from that perspective. However, on the plus side, what is happening is we have an open interest of just Rs 78,000 crore which is the lowest in the last four months, almost near to the level at which we began the January series.
If you were to look at the index futures, they are at a level of 2006, so largely the positions are in the options. But in terms of Nifty futures, the level has gone back to as low as 2006 so that means it can’t go any further short from here.
We expect that the market is unlikely to break a level of 4950 on the lower side and could work its way up on the higher side. The immediate resistance for the Nifty would be in the region of 5240 first and then 5370. If it closes above that, then that will be a sea change in the sentiment.
Q: Banks have become slightly sluggish offlate. How would you approach some of the public sector bank names for the May series, say names like Canara or Vijaya Bank?
A: I think the banking sector per se is lackluster and these two banks, Canara Bank and Vijaya Bank, have given indications that they have headed on the downside. So in terms of Canara Bank, although options are not liquid, we will have to look at only shorting the stock futures. We did see positions being built on the short side and the stock also broke clearly on the downside, so selling the stock futures at around Rs 442 with a stop loss of Rs 446 and hoping to cover it at around Rs 434 is my strategy for Canara Bank.
In Vijaya Bank, the positions were added on the shorter side with slightly more vigor, almost 9% were added. Futures at around Rs 56 with a very small stop loss of Rs 57 and hoping to gain I think Rs 3 on this. So the ratio will work out 1:3 but you will have to work with very small stop losses in Vijaya Bank.