Alpha Trade: Buy Bank Nifty, sell Nifty Oct fut: ICICI

“Nifty futures open interest did not witness any major increase despite it taking out its strong resistance of 5400 levels a couple of sessions back. The action suggests lack of participation and scepticism prevailing in the Street for further upsides. However, the Bank Nifty consolidated for eight months before starting its up move again. Hence, the Bank Nifty may start outperforming the Nifty in the coming days. The banking space remained a laggard and the weakness that started from the PSU banking space after the poor set of Q1FY13 numbers percolated to the private banking space also. The banking space since the beginning of August series witnessed short accumulation. Also, with smooth rollover into the September series, the sector continued to trade jittery. Short covering in the space could be seen now after diesel prices are hiked by Rs 5. Also, the announcement of QE3 in the US may lead to short covering in this space”

“Bank Nifty September options suggest the broader range of 10000-10500, which has largely panned out till date. However, with the ongoing short covering, we expect the Banking index to sustain above its resistance level of 10500 and start outperforming the Nifty in the coming sessions. The price ratio of the Bank Nifty/Nifty is again reverting from the lows seen in January of 1.87. We expect the positive movement to continue in the near term in favour of the Bank Nifty In case of further downsides, the Nifty may decline higher than the Bank Nifty due to profit booking in capital goods and technology stocks. Since the BFSI segment holds more than 25% weightage in the Nifty, a Short Nifty will provide a better hedge against long Bank Nifty,” says ICICIdirect.com research report.

Strategy: Buy Bank Nifty October Futures at Rs10630-10650 and Sell Nifty October Futures at Rs 5590-5600.

Parameters: Current Price Ratio (Bank Nifty/Nifty): 1.90, Target: 2.09, Stop loss: 1.80.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.