Rally not exhausted, support seen at 5000-5100: MF Global

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Indian market has done it again. It has chased away the bears and blues away, well atleast for the time being. Though there are some experts skeptical about the rally, many experts and investors still feel that Indian market has some more steam left.

In an interview to CNBC-TV18, Vineet Bhatnagar, MD, MF Global said that the current rally is showing no signs of exhaustion at the moment. He feels that the Nifty is likely to get support at 5000-5100.

"This morning when we look at it, it is distributed at 5,000-5,100 and the calls are distributed at 5,200 and 5,300. So the market is taking benefit of taking positions as the market is showing the continued momentum," he adds.

Bhatnagar explained that there no signs of short selling or aggressive profit booking yet.

Below is the edited transcript. Watch the accompanying video for more.

Q: It's been a terrific January series. How are you guys mapping February now?

A: There is no sense of topping as you would notice that as far as the derivative segment is concerned and some of the indicators that we track quite closely are still not indicative of any exertion on the upside. The market also has been behaving in a sensible manner wherein as the new highs are being made, the distribution of the Nifty options has been moving in tandem.

So about two-three weeks ago we were seeing the downside being concentrated at 4,800. This morning when we look at it, it is distributed at 5,000-5,100 and the calls are distributed at 5,200 and 5,300. So the market is taking benefit of taking positions while it shows continued momentum.

Q: What kind of upsides can you look at? If you are saying that a top is not visible, how much do you see the Nifty extending itself in this series?

A: What is important is to see on a consistent basis that the 200 DMA for the Nifty is upheld. That number comes at about 5,198. It did close above that yesterday. As long as we are able to see continued closing above 5,200 for the next two-three sessions or thereabouts, there will be greater conviction in terms of the upward momentum.

What is also very important other than the charts that all of us are looking at is perhaps the early signs that we are seeing in the Q3 results of top banking sector firms but also for the tier-II firms and there seems to be a clear sign of sluggishness and compression in margins. That perhaps could be the early sign of some level of exhortation of give back that may happen after all the January excitement.

If 5,200 is upheld, I think the resistance comes at about 5,250 and 5,300 and that is how we are looking at it at this point in time.

Q: We had an almost V-shaped recovery yesterday compared to what the market did the day before. How short is the market now you think? How much of a short cushion does it have at these levels?

A: It's a net long from at least one client segment which is the FIIs. As far as the Nifty futures are concerned, even on the delivery volume in the underlying cash segment there is a net positive. You must have noticed that in the month of January alone there was a net buying of USD 1.8 billion by FIIs in the underlying cash market. So there was an opportunity that these foreign investors saw in accumulating some of the best names in the month of January.

I would imagine that if the momentum were not to continue, there maybe a pause in terms of the speed with which they would show the same level of excitement to buy but I am not seeing any level of short selling or even profit booking from this client segment.

Q: What are the volatility indicators telling you now? Are you sensing any signs of compliancy after the rally or not quite yet?

A: There is on across the board basis - the implied volatilities (IVs) that have come down to about 100 to 125 basis points, numbers which were in the region of 21-22 last month and are as looking at 19.5-20.

The contrarian indicator that we track which indicates the formation of a top or a panic in terms of the bottom is not showing any signs of a topping formation but we must also recognise that our market has behaved dramatically over a short period of time. Therefore, for these readings to change in just about three-four trading sessions is not something that should not be ruled out.

Q: Which of the heavyweights would you pinpoint as the potential leaders for the market rally? Where is it that you are still seeing fresh longs and the potential to move higher?

A: Fresh longs are visible in the frontline banking stocks and the auto sector. We still see that there is some momentum left on the upside or long side for names like Bajaj Auto , Maruti and even Tata Motors . For Tata Motors, the trade in the DVRs has done well. We notice that there was an outperformance by about 12% between the Tata DVR versus the Tata Motors common stock.

There is also strength that we continue to see in names like ICICI Bank . Also, yesterday and today, the stocks which are looking a bit weak are Siemens, L&T, Delta Corp, Indiabulls Real Estate and Punjab National Bank.

Q: What is your top strategy recommendation for the February series for the index or any stock that you are pushing to your clients now?

A: This morning the strategy that we came up with was a limited upside strategy but also something which does not have too much of an outlay. So it's a strategy of one unit of 5,200 long of Nifty call and sell against one unit of 5,300 and another unit of 5,400.