After a dreary start to the New Year, the markets seem to be in the mood to carry on the trend. Witnessing short build-up in the index and short futures, Vineet Bhatnagar managing director of MF Global expects another 120-points compression on the Nifty.
In an exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, Bhatnagar points out that the foreign institutional investors have sold USD 1.3-1.4 billion in the index futures and cash market. He further says that frontline banks are not showing any signs of a quick recovery. Below is a verbatim transcript of his interview. Also watch the accompanying video. Q: What have you made of it on Futures & Option (F&O) side, does it look like the bloodletting is done or not yet? A: There still seems to be some pressure in terms of how the setup is as far as the F&O segment is concerned. We saw a good amount of pressure and erosion of sentiments in the first ten trading days of January. The way we are reading right now there seems to be some residual pressure that is still visible. There is a possibility that there should be some level of compression of about 100-120 points on the Nifty from here. Q: What are the FIIs doing through the January series? Have you seen any significant pile-up of shorts because the number is not indicating that they have shorted the market in a big way? A: We are actually seeing short positions on both the index futures. There is a negative number that is visible even in the cash segment supported by delivery volume. So if you look at the January series alone, I can see data which shows that as much as about Rs 2,000 crore worth of notional value of Nifty futures have been on the short side for the FII as a customer segment. Likewise, in the cash segment there is as much as about Rs 3,500 crore of selling. So, the two together is indicating something close to about USD 1.3-1.4 billion. Q: Do you think this downside that you are talking about will play out in the January series, by the end of the January series? A: We track a number which is the optimum expiration price for the Nifty as an instrument looking at the build-up and the activity in the option for various strikes. That number is indicating which is 5,800 and our past experience has shown that there could be a variation or there could be departure of as much as about 10%. Taking that into account I do not think that the Nifty expiration could actually be much lower than 5,650-5,700 for that matter. Therefore, the call that we have of residual pressure being on the market perhaps is not necessarily going to play out as a panic over the next five-seven days. But that could be something that will play out over a period of time. Keeping that in mind the trading strategy that we were looking at as far as the Nifty is concerned was actually a put spread of buying one Nifty put of 5,800 and selling two as a ratio spread of 5,600 and therefore basing our call on the market of a support getting build-up quite quickly at 5,650 and no worse than 5,600. Q: Interestingly Nifty positions have started getting build in the February series as well. What is it that traders are playing for, you think that this series will be a bit of a wash out and February where there is the budget and a lot of other news cues; we see a strong pullback for the index? A: I guess one of the other characteristics that we saw as we closed the December expiry was the size of the open interest as far as the futures and options segment is concerned. There was a rollover that happened from December to January which was lower as much as 20%. Now what remains to be seen over the next few trading session is whether the rolls are as good as what we had seen in October and November which would mean that what was outstanding in January does get rolled over in February and over and above that new positions are taken My personal assessment is that February should be a month which should see the open interest go up because there will be event driven, news driven interest in the market place. Therefore, any disinterest in trading positions that we saw from the second week of December to first week of January on account of lean trading period on the back of vacation should swiftly come in from hereafter till about the first ten trading sessions of February. Q: Stock futures though have been piling it up; ever since the start of the series itDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
