See Nifty in 5500-5800 band for April, May series: Nomura

Tushar Mahajan, head of listed Futures & Options - India, Nomura expects the Nifty to trade between 5500-5800 in the April-May series.

"For the moment, 5,500 across both April and May seems to be the strike where there is maximum concentration of the open interest (OI)," he said in an interview to CNBC-TV18. Also read: Mkt ready for weak Q4 results; upgrade seen in H2FY14: UBS Below is the edited transcript of Mahajan’s interview to CNBC-TV18. Q: Hectic activity in F&O part of the market. How have you read first what the foreign institutional investors (FIIs) have been up to? What would you take away from the kind of short build-up they have been doing? A: What we have seen over the last few days is the fact that in the first week or ten days of this month, we have already seen over Rs 3,000 crore of shorting on the index future side. That is coupled with the fact that people are now easing out positions in the cash market as well, because India is not used to seeing almost five days of continuous FIIs selling. The futures space, because it is more liquid, saw a pre-emptive selling before people were able to ease out on the cash positions. The mood in the market is definitely not good and given the way the index moved last week or probably in the last two weeks, pre-emptively a lot of hedging of positions took place. Though going forward, yesterday was probably the first day when we saw some bit of a slowdown in selling and I think that should now continue over the next couple of days. Q: What are you seeing on the Options market in terms of strategy? Where is the range the Nifty might be shifting to? A: For the moment, 5,500 across both April and May seems to be the strike where there is maximum concentration of the open interest (OI). In terms of available strike, this also coincides with the gap that was seen in September when the government restarted the reform process with a big bang policy announcements sometime in Mid-September or so. So, 5,450-5,550 is that band and 5,500 typically coincides with the strike available. That is where we are seeing most concentration right now. On the upside, it is more like 5,700-5,800 but for that to cross, you have got the 200-day moving average (DMA) hurdle to cross at 5,650. So, on the upside, it is about 5,800, on the downside it looks like 5,500 for now. Q: At one point, there was quite a bit of activity around 5,300 mark, do you still see that? In the sense, if the market breaks through this 5,500 level, where would you say the next level of support or concentration is? A: We have seen some of it at 5,300 though I will not read too much into it at this stage. The 5,450 mark is a very critical one which is the lower end of the gap which will get filled. That should be a time which should probably see the market bottoming out. I would still not call for 5,300. Q: In individual stocks, we did see some long positions being added in a name like Bharat Heavy Electricals Ltd (BHEL) after the provisional numbers. Did you witness any interesting activity there? A: After a long time, BHEL came out with the provisional numbers yesterday. The numbers were largely in-line and not so disappointing. We did see some bit of a short covering and some fresh buying as well. Given the way the stock has moved over the last two-three months, it is reigning in at almost all time high open interest in terms of short side build up as well. This could be a good candidate to keep an eye out in terms of seeing one big move someday on the back of short covering. _PAGEBREAK_ Yesterday was probably the first day when we saw some kind of short covering and even in that process people did add up some positions as well. Q: How much action or activity are you seeing around Bank Nifty? A: Huge. I think Bank Nifty has now begun to act as a lead indicator for the way our broader indices have been. Given the fact that the Bank Nifty constitutes almost 30 percent of the overall index, the Bank Nifty led the fall here. It is still not giving up on the upside too much, there is still pressure on the bank side. I think that should continue to happen. We have seen open interest increased, individual constituents of the Bank Nifty got getting beaten up and the pressure in the index will continue to be there. Q: What is your outlook for Nifty for the rest of the April series and what kind of a Nifty strategy are you recommending to your clients? A: I would look to a close bottom around 5,450 level. That gap definitely gets filled during the month of April but that is what I see largely for that month. On the upside, I would think that 5,700 is a reasonable top to call. Given the fact that vols have also moved up in between, we are getting some bit of a premium. We are asking clients to sell some upside calls and keep selling with the premium there. Q: Any discernable build up on IT, any pair trades people are playing right now because in the cash market these stocks have gone fairly sideways? A: Infact, I see it more on the short side than sideways. We continue to see selling pressure built up on IT across the four large IT names and that is a reckoning thing, which continues. We have got big results coming in later this week. That is where we are going to probably see some more semblance of direction whether the sector as a whole moves up or down. However, right now we have seen people positioning themselves more on the short side in anticipation of their results there.