May 21, 2013, 10.09 AM IST
After every single day fall, people are forming short positions indicating that participation is low, skepticism is high & FIIs are buying, so this market is not going to correct significantly, feels Siddharth Bhamre of Angel Broking.
In an interview to CNBC-TV18, Siddharth Bhamre of Angel Broking spoke about the current trend in F&O market.
Below is a verbatim transcript of the interview:
Q: How is it looking in your part of the market and how are you guys positioning on the Nifty now?
A: Last Monday, when market spooked by 100 points or so on Nifty, on Tuesday we mentioned not to panic because the fall has not happened because of huge volumes and it was more of unwinding.
Yesterday was more or less same mainly Bank Nifty corrected and banking stocks corrected. Most of these stocks have corrected because of unwinding in that space though Nifty has formed some positions, we believe it is long positions by stronger hands and some short positions by weaker hands.
It is very important to see what is happening from the foreign institutional investors (FIIs) front. Yes, we all are talking about how FIIs liquidity is coming. Tomorrow there is an event where Fed Chairman, Ben Bernanke would talk about continuation or halt or probably slowdown of quantitative easing-3 (QE). We are preempting that the liquidity scenario, which we are seeing, may continue and may not halt looking at the bond yields of the US and Germany.
If you look at the bond yields of US, they have significantly gone up from 1.62-1.63 levels from May 2 to current levels of 1.96. The way yields have moved, we believe there is further upside to 2.5-2.3 levels.
Same goes for German bond yields, they have gone up from 1.16 to 1.37 levels and there is huge possibility that the yield upside would continue to 1.7 to 1.8 levels. Why this would continue? This would continue because smart people in debt market over there are anticipating that the liquidity in riskier assets would continue and hence move, sell your bonds. If you sell your bonds, the price of bonds would come down and the yields would go up and put that money into riskier assets. That is the reason the yields are going up there. So liquidity would continue.
At the same time, if you look at the internals of market, yesterday there was huge unwinding in lot of Put options and people are reading it that there might be a correction in the market and at the same time, there is a built up in 6,300 and 6,400 Call options.
How we are reading it? Look at the premiums where the unwinding in Put options has happened. 5,500 and 5,800 Put options where unwinding has happened, premium is like Re 1, Rs 3 that way. When markets were going up, FIIs were writing these Put options. Why unnecessary for 10 days block that money for returns of Re 1 and Rs 3.
6,000 Put option yes, there is unwinding but the premium is Rs 19-20 but fair enough we are near 6,200. So let us not talk about that. 6,300 and 6,400 Call option saw the built up with rise in implied volatility, which clearly suggest that this is buying of Call option rather than selling of Call option, which was interpreted by many yesterday.
So, we believe this market is not going to correct very significantly, one should hold on to long position and again need not panic. After every single day fall whether it is 100 point Nifty fall on Monday or yesterday's 30 point fall, people are recommending and forming short positions, which clearly indicates that participation is low, skepticism is high and FIIs are buying, so this market is not going to correct significantly.
Q: You have got a strategy on Hindalco Industries today?
A: Yes. Hindalco Industries has rallied significantly from Rs 90 to Rs 110 but we have not seen any significant formation of long positions. 3-5 percent addition in a day or two is not good enough to indicate that this rally would continue. At the same time, we are seeing that euro is depreciating against dollar, which is not good news for currency.
In previous quarters we have seen that Hindalco Industries had very strong support around Rs 110-112 levels. Now, basic of technical says that the previous support would become resistance. We are expecting formation of fresh short positions in Hindalco Industries from current levels and probably you would see this stock correcting from Rs 110-112 to Rs 102. So one should fix a stop loss somewhere around Rs 114 and go short.
One more thing I would like to comment about currency is that you are saying that euro is depreciating against dollar and that is the reason the global currencies like INR is also depreciating against dollar. But this market would probably continue to go up even if rupee is depreciating. So there would be a disparity, which we have seen before that usually when market goes up, currency should appreciate. That may not happen but still market would go up.
Q: You have a strategy on Cairn India in oil and gas sector?
A: Firm crude oil price and depreciating rupee may act as a positive for Cairn India . We have seen huge formation of positions in the range of Rs 295 to Rs 300. The cost of carry indicates that it is basically formation of long positions. So, I believe it is a good buy at current levels. This stock has good support around Rs 290-295. One can go long. We are expecting targets somewhere around Rs 318 and we have fixed a stop loss somewhere around Rs 295.
Intermediate top in Nifty is probably in process. Markets may move towards distribution or correction; Monday may have seen an exhaustion gap in Nifty
ALL GOOD THINGS COME TO AN END. The rally in Nifty which started from 5975 and touched 6415 may now be coming to an end. Fresh buying should be done only after some downward movement in prices has taken place.
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