See upside in SAIL, Hindalco, ICICI and SBI: MF Global

120889 Investors following ICICI Bank. Share this News with them.

0

Like this story, share it with millions of investors on M3

See upside in SAIL, Hindalco, ICICI and SBI: MF Global

Vineet Bhatnagar, managing director at MF Global says that the market is not looking to chase short covering rallies at this point. He says that short covering will aid metal and banking stocks in the near-term.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets ICICI Bank BSE | NSE 31/05/12 Are Mutual Funds betting on ICICI Bank? Other Stocks in this news State Bank of India | Axis Bank | Kotak Mahindra Bank | Idea Cellular | Praj Industries | Power Finance Corporation FPO | Steel Authority of India | Hindalco Industries | Indiabulls Real Estate | HCL Technologies | Indian Overseas Bank | Hero Motocorp |

Vineet Bhatnagar, managing director at MF Global says that the market is not looking to chase short covering rallies at this point. He expects near term range to be 4800 to 5000 on the Nifty. "The range may shift 200 points on either side depending on news flow," he says.

Saying that short covering will aid metal and banking stocks in the near-term, Bhatnagar picks SAIL, Hindalco, ICICI and SBI as stocks with good upsides.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: How is the December series looking now because the first day of the month has been a blockbuster?

A: Yes, just a few days into the December expiry, but there are a few indicators that we could take away. For trading indicator that we were talking about in the expiration week was one which was pointing towards a bounce back, and that was the reason why we had recommended a bull's bet strategy from 4600 to 4800 which worked out well.

Sitting today after a gap-up opening of 3.5% on Nifty, we are still watching very closely the 50% retracement which will come in at 5020. If there is strength in the market which should be visible after the first hour or so, and if 5020 is taken away, one would start looking at 5100.

Till last night, call option distribution on Nifty was such that it was maximum at Rs 500 strike price. 5100 was a little weak one, but the market doesn't take long to change its distribution to flow with the trend. So I would go with the thought that to flow with the trend, a bull spread of 5000-5300 looks sensible, but if 5020 were not to be broken, and therefore if it continues to act as a strong resistance, then the reverse should also be a strategy that people should watch out for. That is to buy a put of 5000, and do a ratio-bear spread by selling a 4700 and 4800 put.

Q: A lot of people have been doing historical analysis of how strong December usually is for the series, how would you call it for the index?

A: Early days, but what we are seeing is that the FII as a segment for Index Future have turned net positive. For the entire month of November expiry, they were sellers of Index Future to the extent of Rs 3000 crore. They have also sold an additional Rs 6,500 crore in the underlying cash market in November, which till date for December expiry is a small number of just about Rs 1400 crore.

Yesterday, on the back of MSCI weightage rebalancing, there was net buying in the cash market by FIIs of a small net number of Rs 34 crore. To counter-balance the sale we have seen for FIIs in the cash segment, domestic institutions have been net buyers to the extent of Rs 1500 crore.

So all in all, there is a net long position that is visible in the F&O space, and therefore, after the short covering relief rally that may have come in after 4630-4620 a few days ago, right now it is looking net long.

Q: On ICICI bank and SBI , how short was the market and what kind of potential pull back do you expect to see?

A: It's really tricky to look at levels after such a stupendous gap-up opening, both for the index and more particularly for these stocks. Clearly names like ICICI Bank, SBI and even the others such as Axis and Kotak were suffering from the overall short positions. The short covering has come, but there may be a tempted long position that may come in and today's gap-up may just be a trap that we should all be a little cautious about.

We would recommend that let us look at the midday situation; clearly there is news-related bounce back that we are seeing across all equities market, that's beyond doubt. So there is reason for people to change stand overnight, led by these six central banks stepping in, People's Bank of China coming in with their CRR cut, RBI perhaps locally looking at a possible CRR cut.... So there is something that the market seems to be cheerful about, but we need to see whether it is really going to follow through or it will just settle down or peter out from here.

Q: Last ten days in November, we saw some serious accumulation of Nifty Futures shorts from FIIs, do you think today starts the process of covering those shorts out or do you think those are positional in nature and won't cover at the first flush of 5000?

A: By last night itself the way the data is looking, it is looking net long of about Rs 900 crore as far as the index future segment by FIIs is concerned. If there is strength in the rally that we are witnessing this morning, it will continue to look better and better.

So short covering got over, it is looks like net long from last night, it could just move in the same direction if 5020, for example, is taken off.

Q: We are seeing a lot of short covering but in metals specifically, what is your assessment of the existing short interest and whether you would chase rallies here?

A: One would not recommend chasing rallies here because I endorse very much that we need to really see whether there is a follow through, whether this is merely a pull back rally with very little change in the fundamental perception about the market in general and whether there will be liquidity or fundamental change in peoples investment sentiment that will come about. It should be visible in the next one week or so, but at the moment, there is no inclination to change any rallies.

There is a relief rebound because of the short covering and there is also a perception that rupee may strengthen a bit because of the CRR cut and any other attempts that may come about. However, they could all end up being very short-lived and becoming a dangerous trap. So those who have positions on the long side, I think it's good to sit on some gains. Book some gains, but a fresh rally after a gap-up like today is a bit dicey.

Q: There was pretty big pile-up in terms of short positions and individual stock futures as well, any specific names that you would watch for in this short covering rally?

A: The names that we were looking at this morning were Idea , Praj Industries , PFC , they could benefit, and SAIL and Hindalco also were the names that we were looking at. ICICI , SBI too are whom had indicated a spurt on the market after it opened this morning. Other names that I can see are Indiabulls Real Estate , HCL Tech , IOB and Hero MotoCorp . These are the names looking to benefit from a gap-up or short covering related rally.