See Nifty resistance at 5260 levels in near term: MF Global

The June series has been a good one and Vineet Bhatnagar, MD of MF Global feels that the disinterest present in the last expiry seems to have faded away. According to him Foreign Institutional Investors (FII) open interest in Nifty is higher than the three month average. FII interest have been renewed in the last four to five trading sessions and Bhatnagar is bullish on the Nifty, seeing the index touch 5260 in the near term.

Bhatnagar feels that most of the shorts in the system have been covered up and he thinks volatility will inch higher around the 5200 levels. He is also positive on banking for the July series. Besides, Bhatnagar expects bank Nifty to move in tandem with Nifty. Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos. Q: June has been a good series, are you expecting good things for the start of the July series as well?
A: Yes, it does pertain to be one where the disinterest that we had seen in the last expiry seems to have faded away. Specifically for the last three-four trading sessions, we have seen that the FIIs have started coming into the Nifty instrument quite nicely.
They have build positions significantly to the extent of about Rs 3,000 crore, the open interest (OI) that they are taking over into the next series is higher than the average that we have seen for the last three months. To that extent, at least, the interest has come back and there is a long bias as far as the build up is concerned. Q: Is that what you see from the FII side as well going into July?
A: That is right. That is exactly what we have spotted. I think one of the things that confused us a little bit was trying to correlate what is happening on the Nifty open interest on NSE versus what could be the approach for the SGX Nifty.
It is intuitively reasonable to assume that the direction the institutions would take, FIIs would take on both the markets, should be similar. But, that is not what we have been able to ratify. There seems to be a situation here where on the NSE, there is of course a long bias as far as the Nifty future open interest is concerned. But, that is not what is visible on SGX. So that confused us a little bit. But, I think it will clear up in the next day or two. Q: What kind of upside do you see for the first part of the July series, given this long bias? If we do clear above this 5,200 level where could it go?
A: It could go to 5,260, which is the next number that we are looking at as far as Nifty resistance is concerned. But, ofcourse for about 13 consecutive trading sessions, the market has been stuck between 5,050 or thereabouts to about 5,190. It needs to come out of this 5,200 number that we have been looking at for a while. And after 5,260 it is 5,350. Q: Yesterday the FII bought an added open interest in the Nifty futures but positions came down, would you say that the last of the shorts have also started covering up?
A: That is right. That is exactly what our analysis has been. Little bit of shorts that we were seeing in the first half of this particular month, in the last three trading sessions or four trading sessions seems to have come to a trickle. Q: Aside from the upside potential for July, people seem more sanguine about how limited the downside risk is, do you get that sense when you analyse the data that downside risk is limited for the Nifty?
A: Yes, if you look at primarily the way the distribution of Nifty options are, you would recognize that for sometime now, the concentration is around the strikes of 4,800. So it is fair to say that people do not look at a great downside potential at this point in time, which is what has been puzzling for a while.
I am not talking about the last two-three days. But, for the last 15-20 days, what has been puzzling the market is that even in the wake of some element of fluidity as far as politics is concerned and the negative macroeconomic numbers that came out, the market was not heading lower.
Given the fact that 5,050 was not broken, from here after it seems to be a situation where some policy initiatives are announced over the next week or so and if the EU summit over the weekend does not come out with anything, which is substantially negative as far as the eurozone is concerned, I think the market should look poised for a breakout of 5,190. Whether it would happen before this weekend or early next week is what remains to be seen.
_PAGEBREAK_ Q: What are the volatility indicators telling you, they seem to have been very subdued for most part of the June series, would you classify that as complacency or do you think the market is confident that the big move on the way down is not coming?
A: The simple fact that over the last 13-14 days, the market has been stuck in this range of 5,050 to 5,190 is the reason why the implied volumes have started drifting down and they are in the region of about 18.5 to 19 which is medium or subdued. Whether they will breakout above 20-21 is something that we are anticipating.
Subdued volumes are clearly symptomatic of complacency or no sudden volatile movements that one is looking at. But, the two will go hand in hand. If 5,190 is broken on the upside, volumes will start moving up and likewise if 5,000 is taken off, you would suddenly see a sharp movement in the volumes again. As a sentiment indicator it is indicative of a status quo. Q: What is the options data suggesting for the July series in terms of where the puts and calls are being written, not just to indicate the support but where the extent of bullishness lies where the call writers are happy to go out and write?
A: 5,200 and it has moved up from 5,100 to 5,200 as far as this particular month is concerned. There seems to be again another indication of that long bias that we have been discussing today. Q: What about the banks, what kind of signals are you getting, individually on these names like ICICI, SBI and also on the bank Nifty as we roll forward to July?
A: Positive and that is primarily because it has become almost synonymous with the way the call on the broad based market is for the last several months now. If there is a long bias that one is looking at for the board based market benchmark like Nifty and Sensex, then identical call comes about even for the banking stocks.
Clearly on the frontline SBI, ICICI Bank. They are all looking positive, there was some pressure but those are daily price movements that one needs to ignore. But, if on the broader basis, we are looking to have a higher Nifty, then there is a higher bank Nifty. Q: Moves have been quite diverse though within sectors, any pair trades that you all are recommending going into the new series?
A: We were looking at a pair trade of Tata Motors versus Hero Motocorp and long Tata Motors, short Hero Motocorp. That is something we prescribed about three trading sessions ago. But, other than that, nothing much has come about.
The point that you have made is quite valid even in the banking sector. Some of the smaller PSU banks are looking negative whereas, some others are looking positive. So one needs to have some clarity if one is taking single stock positions. For instance, Dena Bank was looking under pressure and could continue to be under pressure today. Q: What to you would be a clear short indicator on the market for it to break below a certain level on the downside or do you think if the market continues to struggle like this, is this range bound, it is a sign that it is not being able to make any upside and it is probably headed lower?
A: It is a textbook analysis or assessment of market that says markets are in grips of the bulls or the bears. The fact that the market has stayed in the range of 5050 to 5190 is indicative of it being in the grip of the long buyers or the bulls.
If it were not to come out of this particular range, thereby frustrating the bulls for an extended period of time, there should be an expected grip that will tighten for the bears. In that respect, it is just the pull and pushes of the market forces which could take 5050 or 5000 off as a floor.