SENSEX NIFTY
May 18, 2007, 10.00 AM IST | Source: CNBC-TV18

How to play banking stocks on the F&O side now?

The BSE Bankex has outperformed the broader markets for a third day in a row on Wednesday and closed with a gain of 3.09% at 7,413. Going forward, how should one play banking stocks in the F&O market? CNBC-TV18 spoke to analysts on how they would play banking stocks in the F&O segment.

 Rajat Bose , rajatkbose.com

The BSE Bankex has outperformed the broader markets for a third day in a row on Wednesday and closed with a gain of 3.09% at 7,413. Maximum build up took place in the midcap banks and also the bank Nifty. Dena Bank and Andhra Bank were the two banks where we saw highest build up. There was a big build up of nearly 55% on a very large base, so there was huge buying in the F&O segment. Going forward, how should one play banking stocks in the F&O market? Speaking to CNBC-TV18, analysts give their views.

Abhinay Jain of Sharekhan feels that one can take long positions in Syndicate Bank and IDBI Bank in options rather than futures. “Most banks have witnessed a closure of positions. We have not seen much open interest in any of the banking stocks on Wednesday. New entrants in the F&O space like Dena Bank have witnessed some good addition. But with a sharp move in the banking sector it’s still a bit risky to go long at this point of time. I would advise one to go long in options rather than in futures because as one can minimize one’s losses. Syndicate Bank, IDBI Bank look good, so one can take long positions in options rather than the futures segment,” he added.

The Dena Bank stock is up 11.5% and there is huge buying interest in the futures and options market. Rajat Bose of rajatkbose.com feels investors should pause and buy Dena Bank at lower levels.

“Dena Bank had almost hit a resistance level at around Rs 45 on Wednesday. It has to trade above that Rs 45 range in order to sustain this momentum, otherwise you can expect some kind of consolidation in Dena Bank. Unless you see it actually crossing over the top and sustaining there with good buying, I would rather suggest that one should wait for a pause and buy Dena Bank at a lower level,” he added.

He said there is still some upside left in SBI . “There is still some headroom left in the sense that we might see SBI trading somewhere around Rs 1,320 to about Rs 1,350 in the coming days. SBI’s momentum happens to be pretty good. I did not see the kind of short covering that may be apparent in the Nifty but SBI was actually showing lot of buying even in the cash market as well,” Bose said.

Ajay Srivastava of Dimensions Consulting warns investors to be careful of public sector banks as they are very volatile. "We took a strategy on Wednesday that we will put in a little bit of money here or there in public sector banks (PSBs), like Vijaya Bank etc, that we thought were kind of laggards and which would catch-up with the market. There are pockets of PSBs that are running at 1-1.5 times their book value and their valuation are opening up a bit. At this point there should be value in those stocks as well but PSU stocks are very volatile, so you got to be careful with those stocks,” he added.

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