Expect Nifty to stay in 4500-4900 range: MF Global

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

"The levels of 4,500 continue to be a strong support for Nifty," said Vineet Bhatnagar, managing director at MF Global. In an interview to CNBC-TV18, sharing his expectations from the trade in the January series, Bhatnagar said that the market is likely to stay in the range of 4,500 to 4,900 levels.

"Given the way market traded yesterday, the top could be somewhere in the region of 4,850 at best and 4,500 for the moment is a very strong support," he reiterated.

Further, he also said for this particular series, the FIIs seem to be net long on index futures. "The open interest from them alone is up by about 7% and in the underlying cash market segment, there has been no tremendous activity. It is a very small number which is accumulative net short," he added.

Below is an edited transcript of Vineet Bhatnagar's interview to CNBC-TV18. Also watch the accompanying video.

Q: What is your sense of how the January series might pan out? What are the early indications?

A: We see a trading range building up as far as the Nifty option are concerned, at around 4,900 levels and at 5,000 levels as far as the resistance is concerned. We see a significant support at this point in time coming at 4,500. Given the way the market traded yesterday, there seems to be a view that the top could be somewhere in the region of 4,850 at best and 4,500 for the moment continues to look like a very strong support. Therefore, if people where to get into the market with a short term trade on the Nifty options, it would be centred on these two strikes of 4,500 and 4,900.

Q: How short was the market coming into this series or how much short covering potential do you see if events lead to that?

A: There has been good amount of short covering that has happened already. However, the volume related short covering, which one would have expected is not what one has seen. It is because many of the professional traders and institutions are still not back on their desks from the holidays but looking at the data as of last night, the FIIs as a segment are net long on index futures, for this particular series. The open interest from them alone is up by about 7% and likewise in the underlying cash market segment, there has been no tremendous activity. It is a very small number which is accumulative net short.

Q: So, given the upside that you indicated on the index, what kind of strategy are you putting out for the series in terms of what a positional trader should do on the Nifty?

A: While 4,850 is something that people are looking at but it is quite possible that it needs to be seen by this Friday or by early next week which is a follow up on the smart long side activity that we saw yesterday would tempt us to say that the trade that one could put if a sell a call of 5,000 strike price on Nifty and sell a put of 4,500 Nifty that to our view would be a good trade.

However, one needs to be careful about the stops that need to be placed. So, I would not recommend that one waits after getting into this trade for a break of 4,500, instead the stock should actually be looked at for 4,650 to get out of this particular trade.

Q: What are some of the other indicators that you track suggesting about how the market might move, volatility indicators etc, what are they telling you about the extent of this up move?

A: The valves themselves as far as the ATMs are concerned have tempered down in the last two days, they have tempered down by about 150 basis points which is alright. ATMs are at about 24%. The contrarian indicator for the index and for the equity basket gives us a sense that there is room for market to move up.

The way we have tracked this particular indicator in the past indicates that perhaps there could be a reaction which could take it down to 4,700 or 4,650 at worst. However, there is a good chance that it could actually move to 4,850 which is when the contrarian indicators would then reconcile with the formation of a toppish kind of situation.

Q: Which stocks looks like they are giving you some positive trading opportunities or signals for the first part of the January series now?

A: The names that are coming up are Tata Chemicals and L&T . Tata Motors and the Tata DVR was trading at a large discount of about 50%. So, those who are not hung up on the voting rights could perhaps look at that for a trading position. Some of the names in the cement were looking alright, ACC , Grasim , Gujarat Ambuja . In the IT space, Wipro and HCL Tech were looking alright. These are the names that cropped up after yesterday's trade.

Q: Any observations on two other specific names - Reliance and ICICI Bank?

A: ICICI Bank is not giving any negative build-up in terms of the option trading activity that we looked at for any signals. So, it perhaps could just continue its long side move. However, we are not looking to initiate fresh long positions.

As far as Reliance is concerned, quite surprisingly and in a very uncanny manner, it did not actually show up any kind of long trade ideas that one was expecting to see in it.

Q: Do you expect the series to be less volatile as well? Yesterday of course the India VIX came off quite sharply but do you see signs that it will be a more steady series in terms of its performance?

A: The way things will pan out and perhaps it will be based on the fact that there may not be too much news around the market over the next 2-3 weeks. If Europe comes up with something more decisive, more conclusive it's a different issue altogether but from the domestic market place, some of the statements have already been put out in terms of the stand of the central bank.

One is aware about how the Forex losses are going to be accounted for, as far as major corporate houses are concerned for March 2012. The rate sensitive sectors need to respond if there is a conclusive, more dovish view by the central bank. So, a lot is there in the market already and of course one would see whether there is an upbeat sentiment that builds up from the IT companies and they start coming up with their quarterly results on the back of a weaker rupee.

However, I would imagine that the range of 4,500-4,900 will be one where the trading will be restricted to and the valves will continue to trade between 23-25 or 26.

Q: Which are the names that are not looking particularly strong as you wait deeper into the series, where you would initiate shorts or recommend your clients to stay away?

A: Some of the names which were not looking very positive are HCL Tech , Hexaware and Educomp .