Mar 14, 2013 04:25 PM IST | Source: CNBC-TV18

Volatility to stay; Nifty may hover in 5800-6000: Edelweiss

In an interview to CNBC-TV18, Atul Badkar of Edelweiss Securities shared his outlook on the market and stcoks across various sectors.

In an interview to CNBC-TV18, Atul Badkar of Edelweiss Securities shared his outlook on the market and stocks across various sectors.

Below is a verbatim transcript of the interview:

Q: We have lost some ground these last two days on the index, how are you guys calling it for the Nifty first?

A: We have had quite a volatile week to say the least. If you see from the settlement of February, the expiry date of February from February 28 till date i.e. approximately nine trading sessions, we have seen an open interest (OI) increase of 19 percent on the index with a price rise of close to 3 percent. In the last two days itself you have seen that the OI in the Nifty decreased by 6 percent and close to 1.8 percent price correction.

After speaking to clients or what we are seeing on screen, the sense that we are getting is that the volatility should continue for a while. Broadly speaking, 5,800 to 6,000 is where the range should be held up. We are currently around 5,851 and the 20-day and the 100-day moving averages are close to where the closing was yesterday. So, those two will remain pretty good supports.

We should have a flattish opening today and then we should be trending slightly higher over the next session. Until the rate decision on March 19, it will continue to remain a bit volatile but interestingly we have also noticed that there has been a lot of activity on the index options. So, on 5,700 Nifty strike for example, there will be 13 million shares of OI and on the 5,600 and 5,800 strike also close to 10 million shares and OI stands as of now. So in the last two days, we have seen a lot of protection buying, which usually tends to give us a signal that the downside is limited.

Having said that, you can never rule out a major crack in the market but by and large we should hold this range of 5,800-6,000.

Q: If the market stabilise, you expect stock like State Bank of India (SBI) to bounce back?

A: Basically if the market consolidates around these levels and tends to move higher, we believe that banking will certainly participate and within the banking stocks, SBI particularly in the last few days we have been observing the price charts, some of the technical indicators and the OI increases. So we observe that a lot of shorts have been covered and fresh longs have just started to come in. So, around Rs 2,170-2,175 we should start taking some long positions in this name. There is a good chance you can get Rs 2,250 or Rs 2,260 quite easily. That is a relatively safer banking stock to stay in.

The private ones like an ICICI Bank also looks interesting but it will just be a little volatile. It has a much higher beta. So, you may want to stay away in this kind of volatility immediately. But for SBI, it looks like 4-5 percent on the upside is quite gettable in next few trading sessions.

Q: You think ITC is also good to stay above Rs 300?

A: ITC is a lot more defensive. We have seen a lot of flows entering into the entire fast moving consumer goods (FMCG) and pharmaceutical space. So, within the FMCG space off late although you had an excise duty hike in this Budget, we are again seeing a lot of interest in this name. Even fundamentally, our analyst is quite bullish on this stock and technically looking at the OI on charts as well, this looks like Rs 320 is gettable in a couple of weeks.

Having said that, this is not something where you can go in and come out quickly. This is more like a positional bet where you have to stay a little longer.

Q: You have got a strategy on Ranbaxy Laboratories as well?

A: Ranbaxy Laboratories is one stock where we feel that even fundamentally things are changing in the company. We have just removed a buy report on the stock. We were also observing the technical indicators and the OI movement over the last seven-eight trading sessions. It has completely moved up on the back of short covering.

Now that the shorts have been covered, we are incrementally seeing some long interest coming in. So, this is a trading cum positional bet where in the next couple of weeks Rs 440 is very easily gettable with a stop loss of Rs 412.

Q: What is the medium-term trading call from here? Do you see the Nifty taking out a stop of 6,100 anytime soon or do you see it going back to retest that 5,650 kind of levels where it pulled back from?

A: It will give you an established trajectory post the Reserve Bank of India’s (RBI) decision on the rates.

Broadly, we feel that in the next few trading sessions 5,800 to 5,950 or 6,000 at best should hold. At this point of time, we feel that the downside of 5,750 is where at best it can go and test. We do not see too much downside immediately because there is a lot of protection buying on Options. Having said that, on the upside, I do not think we are easily moving towards that 6,111 level anytime soon when I say anytime soon maybe till the end of the month at least.

So, if the market is going to continue to remain a bit volatile and is establishing and consolidating itself for a level where it can eventually move higher. So, yes, broadly market should move higher but in the next couple of weeks, it will still be in a consolidation phase.

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