Vineet Bhatnagar of MF Global feels that the high volatility numbers indicate that markets have not stabilised. The volatility percentile band has gone above 90% three weeks ago, he added.

Bhatnagar sees Nifty support at 3050-3100 levels. The volumes may peak there, he added.

He sees Nifty’s near-term upside cap around 3330-3450 levels. The ceiling for Nifty rally would be 3330-3450, he added.

According to Bhatnagar, Indian regulators are taking an indirect approach to control short selling. Stocks that look oversold include NTPC, IFCI and SAIL, he said.

Here is a verbatim transcript of the exclusive interview with Vineet Bhatnagar on CNBC-TV18. Also watch the accompanying video.

Q: What’s the prognosis for the rest of October, are you getting the sense that the market has stabilized at all?

A: No, if I look at the volatility numbers it doesn’t appear that the market has possibly stabilized because both the implied volatilities as well as the realized historical volatility are above their 90^th percentile and it is quite easily manifested over the last ten days. The last time in this particular calendar year that the historical volatilities had gone through the 90^th Percentile was in the 3^rd week of January and at that point in time, the reading was at about 27. It shot up to about 65-70 and it came back to the 50^th by April-end. While the volatility across the board has increased dramatically since mid-September, it crossed the 90^th Percentile this time about three weeks ago and the reading is standing at about 66. So now we hope that it should take about another week to ten days to make a new peak and start reverting and fall below the 90^th percentile. 

Q: So what’s your sense, this 3,100 support for the Nifty will hold out for the moment?

A: There is one support which we are initially looking, is at around 3,150 and there is one which is 100 points lower. We hope that, this should give us the contrarian signal of volatility speaking out and a near term bottom coming in.

Q: Even if we do put in some kind of a pullback rally from this kind of an oversold territory, what would be the ceiling for such a rally if it were to come about in a next few weeks or days?

A: 3,330-3,450 should be the ceiling. There is a gap in the Nifty chart at about 3,510 which perhaps caps the optimism.

Q: What did you make of that SEBI communiqué to start collating shorter seller data from the ODI market, do you think that it’s going to tighten liquidity a little bit particularly on the F&O side?

A: One of the first impacts it would have had, would be some amount of short covering. Therefore, some amount of rallies that we could see on some of the counters in realty and metals, looks concurrently oversold. But it’s a measure that many markets have taken earlier and we will take it in a more indirect manner.

Q: What are you seeing on heavyweights right now, because even on days when the market plays for short covering on the Nifty, does it seem prompted by the erstwhile leaders like Reliance or a couple of others from the heavyweight list?

A: On the heavyweight list, the indicative burst in the volatilities could perhaps show the contrarian bottoming out and oversold territory in stocks like NTPC, L&T, RCom, IFCI, SAIL. Some of these names are the ones which are staring at us at this point in time.

Q: Exposure margins on futures have also been hiked. Do you expect that to have any significant impact at all?

A: Over the last few months the open interest on the single stock futures have continuously fallen. It has fallen to a number which is quite small as compared to what use to be in January-December last year - its just about 17000 crore. While one understands the heightened volatility, the formula that goes into the volatility and exposure margin calculation will naturally move up. I think the delivering or the lower outstanding open position at this point in time does not indicate too much of concern to me. There is a little concern in terms of new positions getting built up. In fact, in the FII segment alone, the single stock futures have actually shown a net long of about 1200 crore in this particular expiry month, which is indicates that perhaps they are unwinding their usual long cash shorts in the stock future book.