Nifty may take support at 5880: VK Sharma

In an interview to CNBC-TV18, VK Sharma of HDFC Securities spoke about current market trend and his views on various stocks. He says, "Market will take a support at around 5,880 and it will be very difficult to break this level. Once it breaks on the downside, one will have to take a quite clear and a bearish call on the market".

Below is a verbatim transcript of the interview: Q: What kind of signs are you getting from your part of the market on the index? A: If you were to look purely at the implied volatility (IV) ratio, the IV is telling you that the people are slightly complacent. They are slightly higher than what they were in the month of January. However, the fact is that it is nowhere near the highs that you had to see when you have Budget just seven days down the line. So, the IVs have to go up. If somebody wants to hedge his portfolio at today's market, the Puts are going pretty cheap. The total cost of buying the 5,900 Put and the 6,000 Call itself is coming to around Rs 61 that is fairly cheap. You can take a bullish as well as a bearish call with slightly less amount of money. This low volatility is allowing people to take both side bets. My sense is that the market will take a support at around 5,880 and it will be very difficult to break this level. Once that level breaks on the downside, I think one will have to take a quite clear and a bearish call on the market. Q: Do you have a strategy on Reliance Industries Ltd (RIL)? A: I think while RILis yet to make-out plans for the rollout of 4G, the events going forward will make it a fundamental buy. So in terms of RIL, I am suggesting buying 880 Call which closed at around Rs 14. I expect the price to open lower. So maybe buying that Call at around Rs 10 would be a good idea in order to trade in the coming settlement. Obviously, for the longer-term, you can add further down the line but as a trading strategy it makes sense to buy this Call at around Rs 10. Q: You are bearish on the steel stocks, which corrected yesterday? A: Although fundamentally you have to be bullish on Tata Steel because of the new capacities that will come up in the near future -- the fact that the minutes of Federal Open Market Committee (FOMC) have painted a picture which is bleak for the metal sector as per se -- my sense is that I should be buying 380 Put in Tata Steel, which closed at around Rs 7 and put a stop loss at around Rs 4 and hope to sell this at around Rs 10. Similarly, one can buy Jindal Steel and Power 360 Put at Rs 4 keeping a stop loss at Rs 2 and hoping to sell it at Rs 10. Q: Would you be trading some of the oil marketing companies (OMCs) long now? A: Yes, there is still a good bet. There are two ways in which the market could impact OMCs today. I think because of the fact that crude has gone down, obviously these should make a northward move. But they will also be impacted by the weakness in the rupee, so one will have to take a call. However, I am buoyant with the fact that essentially Indian Oil Corporation (IOC) has doubled the amount of outlets, which Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) have. Together, IOC is larger than them. But the fact is that it is now paying attention to its upstream market also. So along with Oil and Natural Gas Corporation (ONGC), it will look at assets of Videocon. I think on IOC it is a good sense to make 320 Call, which closed at around Rs 7.50, I am willing to buy it at around Rs 6-7 and hope to sell this at around Rs 12 in the current settlement with a stop loss of Rs 4. Q: What kind of positions do you see on technology because that is one space that has been helping the market these last two days? A: Across the board, whatever stocks that are there in the Futures & Options (F&O) segment have seen building up positions. At least the stock has gone up. If you were to look at the best pick, obviously among the larger caps, Tata Consultancy Services (TCS) is the best pick. If you want to choose a slight smallcap then perhaps Oracle Financial Services Software could also be a good bet. But Options are not liquid here.