July series to end above 5150; see trouble in Aug: HDFC Sec

Even as the July series has not been looking good so far, VK Sharma of HDFC Securities believes that the series may not close below 5150. However, he is of the opinion that trouble is brewing in the August series.

Sharma added, “The ball is clearly in the Finance Minister or Prime Minister’s court at this point of time. The market expects some decisions to be taken. If those decisions are taken and if they measure up to the market’s expectations then the 5200 level in the Nifty would be broken and we could also go to as high as 5600 in the current series.” Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Q: What is it looking like for the second half of the July series now? A: The July series is not looking good at this point of time. But what we have seen is the market does look like that. Although it has opened higher for the last five sessions it has not able to hold on to those levels. But it is also not going down as well. So I don’t expect the July series to close below level of 5150. There might be intraday intrusions in terms of dancing to the international cues and falling somewhat. The market should ultimately close the July series in a level of 5150 or higher. But trouble could be brewing for the markets in the August series. Currently, I would be willing to write the 5100 puts in the Nifty. If I have positions in the Bank Nifty which obviously most of the investors have, I’ll try and hedge them in terms of buying the 10200 put which costs around Rs 28. Q: What would cause you to change your opinion about the market, for the Nifty to break a certain level or some other indicators? A: I think the ball is clearly in the Finance Minister or Prime Minister’s court at this point of time. The market expects that some decisions would be taken. If those decisions are taken and if they measure up to the market’s expectations then the 5200 level in the Nifty would be broken and we could also go to as high as 5600 in the current series. But because the expectations are high, and therefore, there is no timetable for the Prime Minister to start acting immediately after the presidential elections. So the market would be on a slightly sticky wicket. But then we have one more meeting of the Fed, he will to present his credentials once more to the Senate. So we’ll have some positive outcome although yesterday’s outcome wasn’t that positive. But the markets in the US have done well and we could also move along with the markets. _PAGEBREAK_ Q: Any other index where you are seeing significant pressure for the market, IT for instance? A: IT definitely would be under pressure, and because of TCS, has been holding up this pretty well. Infosys is not helping matters but definitely TCS which has now more weight than what it earlier had would result into the index falling further. So may be one would expect this particular index to give up something like 2-3% ground more before it stabilizes. Q: Do you have a strategy on Tata Steel today? A: I have not had a great look at the metal pack. But if the dollar was to lose sheen, metals can still hold up somewhat. But if one were to look at a particular sector then one will have to look at only Nifty per se, and not have any position trade outside the Nifty or the bank Nifty. Q: Some of the textiles stocks have become active; do you have a strategy on Arvind Mills? A: Arvind was one of the weakest stocks and positions have been built on the short side. The stock went down by 3%, positions were added to the extent of 5% and puts are liquid here. So my strategy here is to buy the 75 put at around Rs 2.30, keep a stop loss of Re 1 and hope to make Rs 2.70 here. The stock is weak and could further go down to a level of may be Rs 68 or so. Q: How are you approaching Idea and Bharti? A: Both have done well yesterday. But if you have to look at in terms of the pricing options, they are better priced in case of Idea, where the stock 85 call was available at around Rs 1.5. So if somebody can buy between Rs 1-1.5 and hold on to the current level, if the EGoM goes on as scheduled there could be some what better returns for the investors and the investor can hope to make Rs 3-4 buying 85 call at Rs 1.5-1 Q: In the infrastructure space, do you have buy on BHEL, Reliance Power today? A: I am slightly circumspect on these. Although Reliance Power has not fallen, it is just drifting down but my sense is that portfolio here needs to be protected. So the 100 put which is available at around Rs 0.80, that can be bought for investors who are holding RPower. For BHEL, the shorts did happen yesterday and the buying the 220 put at around Rs 7, 220 put was quoting at around 1.7. So buying that would help and somebody can make Rs 3-4 in this put buying.