Mkt may slip to 5100-5140 but bounce back likely: MF Global

Indian market is waiting for RBI's policy action, corporate earnings and reforms likely after the Presidential poll. Though the market has shown some strength, Vineet Bhatnagar of MF Global is not so optimistic. He warns that the market may drift to 5100-5140 as volatility has bounced back to 15-17% in last few sessions.

In an interview to CNBC-TV18, Vineet Bhatnagar says, "Right now, the reading is 1.1 for instance. We are expecting the peaking to happen at 1.25 which should coincide in the range of 5,100 to 5,140. That could come about in the next three-four trading sessions."
At the same time, he also feels that the downside is to be limited while upside on Nifty restricted to 5,300 levels. "Levels beyond 5,350 on Nifty look less achievable currently," he adds.
Bhatnagar adds that PSBs like Union Bank, South Indian Bank are showing weakness. Below is the edited transcript of the interview on CNBC-TV18. Q: Which way is the July series heading? It started off promisingly but seems to have lost its way a bit. How do you see it moving towards expiry this time?
A: We are anticipating a support that should come in at about 5,140 while the movement in the recent past is indicative of lower lows. We derive this assessment from the contrarian indicator that we track, which essentially is based on the money flows in the Nifty options. That is indicating it will peak sometime soon.
Right now, the reading is 1.1 for instance and we are expecting the peaking to happen at 1.25 which should coincide in the range of 5,100 to 5,140. That could come about in the next three-four trading sessions. Q: Would you say there is a greater degree of comfort that the downside is limited in the market? Even if it's rangebound people are not expecting very sharp retracements?
A: I guess this entire slide towards the levels that we are seeing now was also very uniquely characterized by the very low volume environment. We have seen volatilities coming down to the region of about 15-15.5% which is unique and in the last few trading sessions the volumes have bounced back.
They are currently in the region of about 16-17% and our sense is that the downside for the moment could be limited. Therefore, there could be a trading bounce back that one could see. That is also not based on any short covering that the market will be basing the bounce back on.
_PAGEBREAK_ Q: Where are the upsides capped for this series from looking at either the calls being written or any other data that you are seeing on the options front?
A: The distribution is concentrated at 5,200 and 5,300. Our sense is that if 5,140 holds and thereafter, there is a respect to that support level that we are talking about, then it should be around 5,300. Q: What have you seen on the IT stocks or CNX IT index over the last few days?
A: Because the frontline, especially Nifty has been quite weak on the charts and there doesn't seem to be a relief that one is able to witness as far as Infosys is concerned. CNX IT did look or does continue to look a little weakish.
On the other hand, the second line stocks of IT, as we have noticed in the last few weeks, were not looking as weakish as this so-called bellwether. Q: What are you taking away from this exceptionally low level of volatility? Is it suggesting to you that the market will remain in a range for this series and beyond or do you think its smacking off complacence?
A: I guess what you are saying is correct. It is not giving the conviction of a runaway new high that one could assess or estimate. While we are very hopeful that 5,140 or 5,100 will not be broken on the downside, we are also not in a position to look at levels beyond 5,350 at this point in time.
Levels such as 5,600 in the current bounce back looks far less achievable as compared to the trading range which could be the best case outcome at this point in time. Q: Is it still the Bank Nifty that traders are watching for any indicators or the focus has shifted to other sectors like the IT index we were just talking about?
A: I think the mirroring of the broad based index, as far as Bank Nifty is concerned still continues to be the case. Even yesterday we saw the weakness in the frontline banking stocks and Bank Nifty in general.
The kind of strength that we are looking at in the market since opening is completely based on the fact that some of these stocks in sectors like metals, banking, realty, auto, Tata Motors in particular, are all looking stable to recovered. Perhaps that is contributing to Nifty being at 5,230-5,240 now.
_PAGEBREAK_ Q: What are you sensing on the Bank Nifty because that's being the leader sector and private banks continue to outperform, any clear signs you are getting from the Futures & Options data?
A: We were able to see some weakness in the second line stocks or the PSU banking stocks. We were witnessing weakness in names like Union Bank of India, Oriental Bank of Commerce, South Indian Bank but, in case of the frontline stocks - while ICICI Bank was weak yesterday, today the way the market has opened names like Axis Bank, HDFC Bank are adding to the strength of Bank Nifty as a sectoral index. But, there are some pockets within the sector where there is some visible weakness. Q: What have you made of the FII data, they seem to have concentrated a lot in the Options market this series, any takeaway from studying that data?
A: The Nifty Option segment has been quite actively traded as far as the FIIs are concerned. That is where we have been focused on in terms of identifying where a possible support or the most likely resistance for the market will come from. Hence, the numbers of 5,100 and 5,300 that we talked about earlier.
Even on the other segments of the derivative markets such as Nifty futures there is a net long position that we are able to witness as far as FII customers are concerned. They were able to do cash Futures arbitrage as well in this particular cycle. So there is an art book that has started coming into play.
As far as the underlying cash market is concerned, there is a net positive of about Rs 6,500-7,000 crore which has happened in this particular series, till date. There is that underlying support or longish bias that we are able to takeaway as far as institutions are concerned.
_PAGEBREAK_ Q: If your view is that the Nifty is rangebound between 5,140 to 5,350, what is the best strategy to play it for the rest of the series?
A: I guess we will play it on the long side. We will recommend a buy at one call of 5,200 in line with the cap of 5,300, sell another call of 5,300. Since we are suggesting a support of 5,100 sell another put of 5,100 and this would result in a net outflow of about 18 points as far as this strategy is concerned. Q: Any strategies on Reliance ahead of the earnings at the end of the week?
A: No new positions because it could turnout to be a tricky one. Those who are holding it in the portfolio should continue to hold it but, no trading positions till the results come out. Q: How are you playing some of the key underperformers, for instance metals, any clear shorts over there?
A: Yesterday there were pockets of weakness and strength that we noticed. Metal was one of them and there is some strength that is visible on counters like Hindalco and even Sterlite. There was a name that was spotted as far as the F&O segment is concerned and Bhushan Steel was visible. These were the names that were visible to us.