Cover Nifty short positions around 5520: Aditya Birla Money

In an interview to CNBC-TV18, Hemant Thukral, National Head-Derivative Desk of Aditya Birla Money shared outlook on the futures and options market and stocks across various stocks.

Below is a verbatim transcript of the interview:

Q: There is quite a bit of aggressive short built up happening in your market, what are you reading of that and how are you guys approaching the Nifty now?

A: The last time we discussed, I was expecting Nifty to come down to 5,550-5,530 levels. Now from hereon, the market becomes slightly dicey for people who are going short. For me, even if we check the derivatives data point of view, the market is getting into oversold zones. The reason is because the Put/Call ratio (PCR) has reached 0.81 -- last month we touched only 0.78, a six months low. So, after today's downward fall, we will go down to 0.78-0.77, which becomes an area where 90 percent we should see a bounce back coming in.

Also, the volatility has reached 16.12, maximum I am expecting it to go upto 16.5. After today's fall, I would recommend to cover shorts around 5,520-5,510. In fact, hardcore traders can even go long keeping a stop loss of 5,450 because a 100 point bounce back can come anytime now in Nifty till 5,630.

The only issue is the foreign institutional investors (FIIs) are going short in Nifty futures. The way they are selling Nifty futures, we have to see some covering up coming up from their end. There I am slightly optimistic for next two sessions because as I expect the volatility to peak out around 16.5-17, I also expect some covering up of shorts even from the FIIs front in coming one-two trading sessions.

Q: 5,630 - you think that could be the extent of the pullback, nothing more substantial because that is not a very high level to be targeting after such a big correction?

A: My main cause of worry is that it has been around 4 days that we have been below that 200 day moving average (DMA), which was acting as a very strong bottom for us. Now it will act as a stiff resistance.

I would not be pushing beyond 5,630-5,650 for the first pullback. The way the Call writers also have moved towards 5,700, it will act as a very stiff resistance for us.

I am expecting a pullback because some of the short coverings are coming in through FIIs and the volatility is also coming in, I do not expect very big buying coming from their end. So, it is just a short covering pullback.

If we talk about from 5,520, I think beyond 130-150 points, we need some very good FII flows to continue the rally. So, I would not push beyond 5,630 or maximum till 5,650.

Q: Some of the steady heavyweights were cracking on Friday like ITC and you are selling that one?

A: Yes, the way the shorts have been piled up on ITC, it may see some more downward levels. Importantly, the 16 percent open interest (OI) has been added up.

Secondly, the premium has come down clearly telling that shorts have been piled. The main reason was, the way it gave away the technical support level of Rs 295-290, which always has been a strong support zone for ITC, I think ITC should retest now Rs 279-280. If you see, along with all Nifty-fifty stocks, ITC and the IT pack is the only pack that has not tested 200 DMA. I am expecting ITC also to retest 200 DMA of Rs 279-280. So, in an immediate short-term, I think traders can go short but yes, it is a very strong counter. So, you have to keep a stop loss of Rs 295 on it. The moment it goes above that, please come out of this trade.

Q: You have a trading idea on HDFC Bank as well today?

A: I expect the pullback to come in this side of the business i.e. Bank Nifty or the banking stocks. If you see what has happened on Friday, HDFC Bank has seen long built up happening - 5 percent OI has been added up. The premium moved up. HDFC Bank is trying to form a very strong bottom technically around that Rs 605-600 mark. Number of times it is taking support and rebounding from there. In immediate short-term, HDFC Bank should move up and help Nifty moving up. My target would be around Rs 640-645.