See Nifty resistance at 5260 levels in near term: MF Global

Bhatnagar feels that most of the shorts in the system have been covered up and he thinks volatility will inch higher around the 5200 levels. He is also positive on banking for the July series. Besides, Bhatnagar expects bank Nifty to move in tandem with Nifty.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos.

Q: June has been a good series, are you expecting good things for the start of the July series as well?

A: Yes, it does pertain to be one where the disinterest that we had seen in the last expiry seems to have faded away. Specifically for the last three-four trading sessions, we have seen that the FIIs have started coming into the Nifty instrument quite nicely.

They have build positions significantly to the extent of about Rs 3,000 crore, the open interest (OI) that they are taking over into the next series is higher than the average that we have seen for the last three months. To that extent, at least, the interest has come back and there is a long bias as far as the build up is concerned.

Q: Is that what you see from the FII side as well going into July?

A: That is right. That is exactly what we have spotted. I think one of the things that confused us a little bit was trying to correlate what is happening on the Nifty open interest on NSE versus what could be the approach for the SGX Nifty.

It is intuitively reasonable to assume that the direction the institutions would take, FIIs would take on both the markets, should be similar. But, that is not what we have been able to ratify. There seems to be a situation here where on the NSE, there is of course a long bias as far as the Nifty future open interest is concerned. But, that is not what is visible on SGX. So that confused us a little bit. But, I think it will clear up in the next day or two.

Q: What kind of upside do you see for the first part of the July series, given this long bias? If we do clear above this 5,200 level where could it go?

A: It could go to 5,260, which is the next number that we are looking at as far as Nifty resistance is concerned. But, ofcourse for about 13 consecutive trading sessions, the market has been stuck between 5,050 or thereabouts to about 5,190. It needs to come out of this 5,200 number that we have been looking at for a while. And after 5,260 it is 5,350.

Q: Yesterday the FII bought an added open interest in the Nifty futures but positions came down, would you say that the last of the shorts have also started covering up?

A: That is right. That is exactly what our analysis has been. Little bit of shorts that we were seeing in the first half of this particular month, in the last three trading sessions or four trading sessions seems to have come to a trickle.

Q: Aside from the upside potential for July, people seem more sanguine about how limited the downside risk is, do you get that sense when you analyse the data that downside risk is limited for the Nifty?

A: Yes, if you look at primarily the way the distribution of Nifty options are, you would recognize that for sometime now, the concentration is around the strikes of 4,800. So it is fair to say that people do not look at a great downside potential at this point in time, which is what has been puzzling for a while.

I am not talking about the last two-three days. But, for the last 15-20 days, what has been puzzling the market is that even in the wake of some element of fluidity as far as politics is concerned and the negative macroeconomic numbers that came out, the market was not heading lower.

Given the fact that 5,050 was not broken, from here after it seems to be a situation where some policy initiatives are announced over the next week or so and if the EU summit over the weekend does not come out with anything, which is substantially negative as far as the eurozone is concerned, I think the market should look poised for a breakout of 5,190. Whether it would happen before this weekend or early next week is what remains to be seen.