See mkt trend lower on weak global cues: Vineet Bhatnagar

Baffled by the lack of robust volumes in the March series, Vineet Bhatnagar, managing director, Phillip Capital sees the Futures & Options market trend lower on the back of weak global cues.

The US Federal Reserve meet indicated the lack of consensus on asset purchases leading to the US markets sliding. This, along with the Japanese stocks performing poorly will have ripple effects on the Indian Futures & Options market believes Bhatnagar, who sees the market trending lower today.

Also read: Fed may need to taper, halt QE3 before jobs market heals
On the FIIs participation in the market, Bhatnagar says, "There is an overall short build-up on the index Futures side from the FIIs. There is some amount of lightening that has happened as far as the open interest is concerned on the SGX for the Nifty Futures side. Overall, however, the market is looking very, very tricky right now," he adds. Below is the edited transcript of Bhatnagar’s interview to CNBC-TV18.

Q: There has been quite a bit of selling in your part of the market through this series. What kind of indications are you getting on what the Foreign Institutional Investors (FII) are doing and what that means for the index?
A: Yes, there is an overall short build-up on the index Futures side from the FIIs. There is some amount of lightening that has happened as far as the open interest is concerned on the SGX for the Nifty Futures side. Also a short build-up has been created on the National Stock Exchange (NSE).  It is in the region of about Rs 4,000 crore. However, in the underlying cash market, there is a positive number of about Rs 9,000 crore that we have seen in this particular series. Overall, however, the market is looking very, very tricky right now. Q: Going into the March series, what are your expectations when you say the Nifty is looking tricky?
A: The expectation we had, was essentially an increase in the volumes for the March series. This is primarily because this is an event month or the expiration actually coincides with two important events- one relating to the fiscal cliff in the US and also the Union Budget for our own market here.
Therefore, the expectation was that the volumes of March series as compared to February should actually widen, but we have not seen that happening yesterday and that is what is quite baffling. Q: Do you expect the Nifty to go down below the 5850 levels in the near-term or do you think those supports will hold out?
A: Today and tomorrow could be the cues that we would look at very closely. A great insight for Monday onwards should be visible on the basis of today and tomorrow. The expectation today is that the market should remain soft, primarily for two reasons- one is the continuity of what we saw in the local market here and secondly, there is a regional and US cue about the softening that we have seen on account of Fed meeting yesterday. Japanese stocks were doing low yesterday. SGX Nifty was trending low. So, it is expected to open soft today and trend lower. Q: What is your analysis of the FII activity over the last few days? Did you get the sense that these are directional shorts? Or are these arbitrage positions which are showing up as some short positions on the Nifty?
A: No, these clearly do not appear to be the arbitrage positions. These are short build-up, but ofcourse they will be nimble for trade over the next few trading sessions to take cue from the market. Today is also important for the simple reason that the Budget session in the parliament starts today and as many as about 50 odd bills are expected to be tabled. One of the key bill, the Land Acquisition Bill, will also be discussed. One needs to keep a track of all this and it is quite possible that Nifty does not slide below 5840. So, one really needs to track the market and news closely over the next few days. Q: What is the Options data suggesting to you? Is there a lot of writing of Calls of around 6000 indicating a belief that for the near-term the market moves are capped there?
A: Yesterday we saw something very absurd. There was some Open Interest (OI) that got build-up at 6200 Call. As many as 20,000 lots were seen at 6200, but the maximum OI for the Call side is still in the region of 6000 and 6200 strikes and for the Put it is at 5900. So, at this point in time, while we are looking at market closely and one needs to be careful about a simple thing of just following the trend.
We think that 5900, or 5840 to be more precise, should not be broken and therefore the recommendation is one where we are talking about Reverse Put Ratio as a Nifty strategy to our clients this morning.
Sell one Put of 6000 strike and buy two puts of 5900 strike. So, it would act as a nice portfolio hedge. Those who do not have a portfolio to hedge, they could do some amount of delta hedging.
_PAGEBREAK_ Q: If over the course of the next few days you see the market breakdown below that level of 5900-5840 would you expect to see a huge surge in terms of shorts or do you think people will start looking at incremental buying positions on the index?
A: I think the traders and quite possibly some of the smart money could start looking at participating in the trend and I say so because there could be an expectation of acceleration of the trend because of next week being a very momentous week. Also, if it is consistent with the type of sound bytes that are coming from New Delhi as far as the Budget session is concerned, then perhaps that could only be an exaggeration and perhaps people would like to flow with the trend. Q: Expiry is on Budget day this time. Any calls already for what the next series may look like in terms of a range for the Nifty?
A: Not really. That is what we have been struggling with. Broadly, the range looks like 5840-6040 to me this morning, but we need to really take stock of the whole thing on Monday morning again, depending upon how this moves today and tomorrow. Q: In which stocks or clusters are you seeing maximum shorting pressure now?
A: Metal sector is something that was visible to all of us yesterday. Banking is also not looking strong particularly and those were the two sectors that stood out. Realty, except for DLF which has been posting some gains, perhaps some weakness this morning has also not been looking very strong. The only sector that stood out at the time last week or early this week when markets were soft, was IT which has been behaving like a defensive sector. So, we saw some element of holding up in names like Tech Mahindra, HCL Tech, Tata Consultancy Services (TCS), but otherwise there was not much that was visible in terms of strength anywhere else. Q: The problem has been the midcaps. Any specific stocks on which you are seeing a huge pile up of shorts?
A: No, but this is the typical symptom that is always visible in the midcaps  when the market does not move. When the front-lines do not move, there comes an across-the-board kind of pressure on the midcaps. There is nothing that we have seen particularly as far as the midcaps are concerned in terms of the short pile up. Q: Any observation on the volatility index and whether that has been some kind of pointer to where the market has been headed?
A: That is the key parameter that we have been looking at. What we noticed from Monday onwards was that the at the money volumes for February and March should start behaving in a way that will start indicating the direction of the market or the expectation from the market because of what is going to happen next week, particularly on February 28 which is also the expiration for this particular series. Quite contrary to our expectation,  maybe it will surprise us after a few days. The volumes had been very muted both for February and March. Q: What kind of strategy would you recommend for investors on the day of the expiry given it is the Budget day? Does it make sense to play for higher volatility on that day or are Options too expensive anyway?
A: We would like to recommend play for the volatility because on February 28 or 27 one would take positions for the March series. Our recommendation would be to play for the volatility and that is how it should play out because it is muted, it is in the region of about 14.5-15 and it should only spike up regardless of which way the market should move Nifty up or down. Q: Any pair trades that you are recommending going into the Budget event in terms of stocks that could likely be targeted in the Budget and might react?
A: What we have observed and we continue to hold as a nice pair trade is- sell Grasim India and buy Ultratech Cement. Q: What about the Bank Nifty now?
A: Bank Nifty is actually looking under pressure. We have seen all the frontline stocks also not being able to hold up; whether it is ICICI Bank, State Bank of India or even Axis Bank. So, there is some level of pressure that is visible on Bank Nifty which in some ways is behaving in a tight range or under pressure much the same way as Nifty is.