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Feb 26, 2013 03:40 PM IST | Source: CNBC-TV18

Not aggressive on mkt until Budget; short HCL Tech: Bhamre

In an interview to CNBC-TV18, Siddharth Bhamre of Angel Broking, spoke about his reading of the market and his outlook on various stocks.

In an interview to CNBC-TV18, Siddharth Bhamre of Angel Broking, spoke about his reading of the market and his outlook on various stocks.

Below is a verbatim transcript:

Q: Are you still buying the dips in the market or beginning to lose hope on any uptrend?

A: We are not losing hope but we are remaining a bit light on market at this point of time. We are not shorting indices, but we are short some selective pockets from a very short-term perspective. However, it is not worth talking about.

What is making us remain hopeful is what foreign institutional investors (FIIs) are doing in the cash market.

At the same time, the implied volatility (IV) has inched up slightly in yesterday's session. Though the IV of February series had significantly increased, March IVs are quite low. In fact, we are not expecting a significant downside till February 28, which is a Budget day and the expiry as well. We are suggesting our clients to initiate short strangle or straddle for February series and long straddle for March series because the IVs of March are very low and the IVs of February are very high. So, we expect it to even out by February 28.

From positional perspective, we are seeing people go negative in this market; a lot of short positions have been initiated in indices, in lot of stocks, be it largecaps or smallcaps or midcaps. At the same time, people do not have any whatsoever expectations from Budget. A lot of discussions have been happening about what cannot come from the negative way but nobody is talking about what positives can come.  Implementation of goods and services tax (GST) would automatically increase 1-1.5 percent in gross domestic product (GDP). I believe a lot of negativity is present going into Budget and negative positions. So even if we get slight positive or no negative Budget, I believe post Budget you might have a good rally.

But there are two things which we need to take care from derivatives data. Firstly, if FIIs rollovers are less in index because they have been shorting in last ten days to hedge their positions, which would say that market would go up. Secondly, if non-FIIs rollovers are very high, which suggests that people are rolling over their short positions. If these two criteria are met and market remains around 5,850 which is according to us an accumulation zone then you might see a substantial rally post Budget. So, we are not shorting this market, at the same time not going very aggressive before Budget.

Q: The CNX-IT index has done quite well relative to the market but you are using the opportunity to go short on something like an HCL Technologies?

A: These days IT sector is considered as defensive sector and we have seen how Infosys, Tata Consultancy Services (TCS) have gone up with good volumes in cash market as well as formation of long positions. However, same was not observed in HCL Technologies.

At the same time, when big guns are talking about spending cut in US, one cannot expect the outlook for IT to remain positive. As I talk to my analyst, the last quarter numbers -- maybe one-off -- came as a positive surprise. So, I believe in this opportunity of a rise, you need to identify stocks where the upmove is not because of strength.

Look at the volumes in HCL Technologies' cash market. There were hardly any volumes and not many long positions formed. So, I believe this is a good shorting opportunity for this stock at rise between Rs 735 and Rs 740. You fix a stop loss around Rs 758-761 and I am expecting around Rs 685 on the downside. So HCL Technologies can be shorted but same cannot be said for TCS and Infosys. So be selective in shorting IT.

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