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Apr 26, 2013 02:58 PM IST | Source: CNBC-TV18

Stay with rate sensitives if 5850 holds: ICICI Direct

Amit Gupta, ICICI Direct believes that market has some upside left. Going by the trend of what FIIs suggested in the past, they had three major levels where they shorted Nifty from February onwards, 6000, 5850 and 5730.

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Todays L/H

Amit Gupta, ICICI Direct believes that market has some upside left as foreign institutional investors have rolled their short positions to the same extent as they did in previous expiries. On Thursday Nifty expired above 5900 and rolls were at 66.78 percent, substantially higher than 3 month average of 57.36.

Analysing the rollovers, Gupta told CNBC-TV18 that FIIs have shorted Nifty at three major levels since February — 6000, 5850 and 5730.  Since we have already crossed the first two pit stops, Gupta says the market is heading towards the last short level of 6000.

According to Gupta, momentum long-position holders to keep a stop loss at 5850 and remain positive on rate sensitive stocks. But "shift funds to defensives" if 5850 is breached on the downside, Gupta advises.

Also read: Mkt to be choppy; opt to sell in May and go away: Sukhani

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Huge wave of short covering that closed up the series yesterday, are all the shorts out the system now as we step into the new series and what kind of call are you guys taking on the index?

A: Last time I had mentioned that the Foreign Institutional Investors (FIIs) were closing the short positions in index Futures in the last series. If you look at the rollovers, the first time in the last three months they haven't rolled the short positions to the same extent what they were doing in the February to March and March to April. So, this is one immediate positive for the May series.

Now if they haven't rolled their short positions to the May series then it may have two conclusions, 1) They are not expecting the immediate downsides in the market. 2) The role spread was not good for them to role the short positions. It was only 8-9 points.

So, they are looking for further upsides in the market where they can form short positions in May possibly. So, market has some upsides left. We read this data of the FIIs and along with this if we have to look at the levels then they have three major levels where they shorted Nifty from February onwards. One was 6000, the later was 5850 and then 5730.

We have already crossed 5730 and 5850, now possibly we are heading towards the first short of 6000 levels. Above 6000 I think it will be a different scenario where one will see another last leg of 100-150 points.

However, for the time being I feel 5850 for the momentum long positions should be the stop loss. Till Nifty is not closing below this level I think one can remain positive on interest rate sensitive or the oversold stocks. Once we are closing below 5850 then possibly it may be a time to shift the funds to the defensive stocks. There also we are seeing some short covering happening and then market may possibly come up to 5730-5740.

So, our positional view is that 5730 which was the last short of FIIs, till we are not closing below that we are not going to unwind our all the long positions. Below 5850 yes we will close our immediate momentum long positions in the interest rate sensitive at least.

Q: How would you approach the Bank Nifty now because that has been the start in the April series?

A: If you look at the rollovers in PSU banks and private banks right now, in private banks the rolls were low, whether you look at HDFC Bank or Axis Bank or other private banking heavy weights. The reason being that people went short in the last leg in all private banking was because they outperformed. There was a theory going on that whichever stock has outperformed, it may fall more because of long liquidations.

So, in the last leg people tried to go short more in the private banking. Then in the last week before expiry there was more closure of shorts in private banking than the rollover of positions. Then we had very good results of private banking coming out that also led to more closure of shorts.

So, if one looks at PSU banks starting from State Bank of India (SBI) or others like Syndicate Bank or Oriental Bank of Commerce, still I think that people are waiting for the results. That is where they have rolled good number of positions to this month. A 73-74 percent of rollover is there in SBI.

So, still there is going to be more volatile movements in the PSU banking vis-à-vis the private banking. Now if one looks at Bank Nifty where the weightage of private banking is more, I think it is not going to see much volatile moves. On the higher side 13000 is going to be the immediate resistance where lot of call writing has happened so far.

On the downside when good support is 12450 to 12500 this could be the range immediately for bank Nifty. One can say the outperformance of Bank Nifty over Nifty after some halt or consolidation that may again start if the PSU banks also start giving good results.

Q: You have a strategy on Hindalco Industries today, how are you playing that?

A: If you look at March 28 that is last expiry, we saw that the market was around 5680 but Hindalco was around Rs 87.5-88 levels. Thereafter Nifty went down by 200 points, but it didn’t breach that days low. So that means there is some strength in Hindalco and it has outperformed the other metal stocks in the move afterwards. We have seen around 10-15 percent of positions have also been closed since then.

However, if you look at the rollovers yesterday they were higher in Hindalco and Tata Steel more. So, I believe people have rolled the short positions still but the underlying is showing some kind of strength. That is why I am betting more on the short covering in Hindalco particularly Rs 95-97 this particular range can be used to buy that stock.

Look for a target of Rs 103 and 50 day moving average plays around Rs 98. My gut feeling is it should be taken out so on the downside one keeps a stop loss at Rs 92, which is the last trailing one month higher band. So, it will take lot of time to breach that level on the downside now.

Q: Any specific non index stock that caught your eye in terms of very strong roles or very large long addition going into this series?

A: One stock one can look at is Dabur India because this stock is at all time high and this is defensive. On the up moving market we are seeing that defensives are also making lifetime highs. It is a good thing for the stock because if market becomes jittery at these levels even then I expect these stocks to perform.

Dabur after six months it has breached the upper band of Rs 135 and it has made a lifetime high. So, I don't think it is going to be a false breakout. It may be a sustainable one and if you look at the open interest in the last six months roll to roll basis, we have seen around 25 percent of open interest has got reduced during this period.

So, whosoever try to go short in the stock around Rs 123-125 which was a lower band of this particular period, they failed to make money. Finally they are cutting down the positions and this is where the open interest has come down little bit.

However, whatever positions have been rolled now in this particular month they are also going to slowly start getting covered because the stock is not giving up. So, my sense is it is going to come to around Rs 163-164 levels, on the downside keep a stop loss at Rs 132.

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