Nifty to see sub 5500 in Apr; sell on rally: Angel Broking

In an interview to CNBC-TV18, Siddharth Bhamre of Angel Broking shared outlook on F&O market and recommendations on various stocks.

Below is a verbatim transcript of the interview: Q: How are you calling it for your part of the market and what is the stance that you guys are taking on the Nifty this morning? A: We continue to hold our short positions and we remain bearish on market. We are anticipating breach of this 5,500 levels which is a strong support according to a lot of market participants within April series. We might see much lower levels than 5,500 in this series itself. Very important observations, yesterday crude oil prices have corrected significantly. You have seen that because inflation has significantly come down, a lot of people are now expecting Reserve Bank of India (RBI) to cut the rates, which may eventually happen. That is the reason your bond yields have corrected to 7.83. It has a good support to 7.8 and we believe that 7.8 support would go and it would come down to 7.5 in quick time. Over a longer period of time it is good. However, in very shorter duration, these things get into economy with a lag effect of six-nine months or probably an year. Statistically, crude oil price, interest rates and the bond yields, these things are directly proportional to each other. So, if bond yields and crude oil is coming down which are lead indicators for markets, which are directly correlated, we become negative on the markets. So we continue to hold on to our stance. From the liquidity front, if you look at foreign institutional investors (FIIs), they continue to short this market, they are selling in cash market as well. The amount in cash market is not huge because of the impact cost they would have to face in case they sell 800-1,000 or probably more than that in single trading session because they are not getting that kind of buying support from domestic institutional investors (DIIs) because DIIs are not having enough money to pump in to the markets. All these factors put together, the way people are assuming that 5,500 is a support because there is a lot of Put selling, which has happened which is wrong according to me, it is more of buying which has happened in 5,300-5,500 Put options. These factors club together, we believe this market is heading down and any bounce should be used to go short in this market. Q: Yesterday we saw quite a bit of action in the banking space on the upside. Will you short into the rally that we saw yesterday and if yes, which are the stocks that you would pick up? A: Inflation figure has compelled now. People do think that RBI would cut rates and it may happen. This has resulted into optimism among participants that banking stocks would rally and yes, they would. However, it is more of a spike. In fact, last monetary policy when you got that 25 bps cut in interest rate, you did not see 10 points move also in Nifty on the upside because market participants had already discounted that upside move when they got index of industrial production (IIP) numbers and gross domestic product (GDP) numbers and inflation numbers. Same way, markets are in advance discounting that interest rate would be cut and prices have gone up. This is not making us comfortable. Punjab National Bank (PNB) has gone up mainly because of short covering and the volumes where a stock is going up, if you compare all the volume chart, it is not very significant. We believe that it may not sustain at higher levels and we would suggest to short at current levels. We are expecting a significant downside in PNB but as of now, we are limiting ourselves to the price target of Rs 682 and you can fix Rs 748 as a stop loss and go short around current levels. Other stocks like State Bank of India (SBI) have also rallied because of short covering plus blend of some long positions but above the resistance zone of Rs 2,120-2,150, I am not expecting a significant upside in SBI. Also, we continue to remain negative on private sector banks. Overall banking pack is one space, which is so over-owned that any unwinding by FIIs would lead to good amount of fall whether it is public sector undertaking (PSU) or private. Q: You have a short call on Maruti Suzuki India, tell us about that? A: We have seen good formation of long positions from Rs 1,300 levels on Maruti Suzuki India and in a market scenario where you have pathetic auto numbers coming in because of yen depreciation, stock had gone up more than 25-27 percent additional open interest (OI). Yen has retraced from 100 to 97 and it is being understood that in G-20 meeting, which is going to happen in recent future, people are going to tell Japan to go easy on the depreciation front. I believe this would halt rally or a depreciation of yen for sometime and there would be unwinding in Maruti Suzuki India. I would suggest to short at current levels. Though we are not expecting very huge downside in Maruti Suzuki but Rs 1,340 is on cards. One should go short here with a stop loss of Rs 1,445. Q: You were talking about how every opportunity in terms of a gain is a point to short the market, if you do initiate a short in trade today, what kind of immediate levels are you playing this for, are you looking for the 5,500 level or do you think there is potentially even lower than that? A: Certainly, on positional basis we are expecting levels much lower than 5,500. As you guys have also been mentioning and participants are also quite optimistic on 5,500, there would be some kind of respect, which a market would tend to show. Do not expect major bounce from 5,500. If you are a positional trader then hold on to your positions even if you are seeing slight bounce after 5,500. However, if you are an intraday trader or a day or two trader then respect that level, cover your shorts and again if you get a bounce, you go short. I am not sure about the targets, which we have in mind because we are not seeing any Put selling. Whenever we see Put selling of certain strike then we say okay, that is the target but whether it is 5,200 built up, 5,300 built up, it is more of a buying built up. So, we are unable to identify the lower side targets. However, one thing on which we are quite certain is that the probability is high that 5,500 would go. So one should hold on to one’s short positions. Q: Options market, do you have any kind of strategy from now for the next one week in order to hedge your downside? A: Very simple strategy is that buy 5,500 Put. Though implied volatility (IV) is slightly on the higher side, I believe because of the delta movement the market movement is on the downside. The slight higher premium which you are paying because of 18-18.5 percent, I would be taking care of. So, instead of going into a complex strategy, I would just recommend buy 5,500 Put option and the kind of premium which we are paying as on yesterday, price is quite meager.