Nifty may see 5230; go long on declines: ICICI Direct

Q: You have got an interesting pair strategy on the index and TCS . Can you elaborate on that?

A: If you look at the whole IT pack, TCS is looking the best. Yes, it may have rich valuations. But yet I believe the factor, which is driving the stock, is the shorts in the stock. Whenever it falls, the shorts start getting covered. If you look at the move in the month of April, from the start of April we saw that the heavy shorts started building up in the TCS. From Rs 1,200 levels, it was dragged almost 7-8% down.

After Infosys results, we saw further leg down in the stock. But once the TCS results came out this last quarter, there was immediate sharp pullback. Since then, the shorts have stuck up in the stock. So, Rs 1,200 level is going to be a very crucial one; Rs 1,180-1,200, you can take this range. So, if somebody is going long in TCS futures around Rs 1,230 also and going short in Nifty after such a sharp pullback then even if market moves up, the short covering in TCS will provide you extra alpha. Even if market starts seeing profit booking from these levels, this particular stock may hold on. In your portfolio, it will give you extra alpha that you are looking at in comparison to the benchmark.

Q: You have got a strategy on BPCL as well this morning.

A: For the last two-three months, BPCL is continuously showing a lot of strength. Whether the crude is at higher level or whether the crude is at lower level, it is not affecting this stock price movement. If you look at the last October 2011, this stock had a breakdown from Rs 680 levels. When the market started moving up, from February onwards, for the last two or three months, it has just consolidated around Rs 680. It had a move towards Rs 670 in the intermediate period. Finally, because of profit booking, it came down and retested Rs 680 again.

My sense is it is going to retest Rs 770 again on the higher side. The kind of delivery based buying we are seeing could be the best reason to support this rationale for the upside in the stock. I think Rs 680 is going to be the rock bottom support in the near-term.

Q: How do you approach trade today? If you do get closer to 5,200, would you consider lightening up or just play the trend till the end of the week?

A: I think we are opening flat, as far as the SGX Nifty suggests. Since we moved above 5,000 levels, we haven’t closed below 5,050 so far, the lowest was 5,049. If I look from the closing perspective, if we are closing below 5,049, that would be the first trigger that this rally is going to halt and some reversals are going to come.

On intraday basis, any decline towards 5,050, I will use it to go long. So, it is very much possible that 5,050 or the 50-DMA, which is placed around 5,080, this range is going to be critical for today. So, whenever market is falling in this, buy this for today and look for the upsides towards 5,180.