Panic selling seen, Nifty may touch 5820-5830: ICICI Direct

Amit Gupta of ICICI Direct shares his market outlook and views on various stocks. He says, "My sense is if Nifty starts slipping below those levels, you will see more panic creeping in and the market possibly may go down till 5,820-5,830 kind of levels".

Below is a verbatim transcript of the interview: Q: How are you calling it in your part of the market and what kind of activity are you seeing from the foreign institutional investors (FIIs) now on their Nifty positions? A: Recently at Nifty February future of 5,900, very high volumes were seen. My sense is if Nifty starts slipping below those levels, you will see more panic creeping in and the market possibly may go down till 5,820-5,830 kind of levels. 5,900 Put base is also the highest but these are not very strong hands, which are entering into the market because in the starting of the series we had the highest Put base at 6,000 levels and now it has come down to 5,900. It is possible that if we slip below 5,900, this highest Put base may go down further. So, this maybe a little bit cascading effect that we are seeing in the market. I am clearly eyeing 5,900 February future level on the downside. On the higher side, if you look at the FII activity, they shorted index futures in the first week of the series from 6,040 to 5,980 levels. So that is a very stiff range on the higher side. This was the range when the whole premium of Nifty almost got vanished in just 2-3 sessions. During this period only, we had seen lot of buying in index options by the FIIs that happened especially in the out-of-the-money (OTM) Put part. That is still intact. We have not seen the closure of those positions yet. Another thing is that, I do not think index is a true picture of what is happening in the stock because Nifty has come down by almost 3 percent. The CNX-midcap index has come down by almost 10 percent. We have already seen what happened to the construction or the real estate stocks. So, I will be very choosy in finding out the long stocks right now. I will look for shorting more wherever the long positions were built up heavily above 6,000 levels. Q: What are you going to do with the Bank Nifty now and any specific banks on which you are feeling a bit skeptical? A: In Bank Nifty 12,500 remains a very critical resistance. This was the high of December series and the low of the January series. Now, again we have come below this. We are finding lot of resistance whenever Bank Nifty is moving up. Private banking stocks were the previous laggards because they were not able to sustain above the higher levels, long liquidation has started coming and State Bank of India (SBI) also is not helping the cause. Yesterday, we saw that another long liquidation has started happening in SBI. 1-2 percent closure was there before the results but now it is coming closer to a good support. Rs 2,180-2,200 for SBI maybe a good support because from January 2012 when we look at it, whenever it has fallen, it is forming the higher bottom. So the previous bottom comes closer to Rs 2,100, I do not see it going to retest that immediately and there maybe some bounce possibly around Rs 2,180-2,200. Today is the result, even if it is not good -- because I think the stock has come down by almost 11 percent -- you may not see the major crack in the stock. I am picking Kotak Mahindra Bank for the short side because the stock had seen a lot of long at the higher band when it moved up. That was closer to Rs 670-695. Almost 25-30 percent of open interest (OI) was added during that range and now when it is not able to hold Rs 670. We are seeing those positions are getting exited from this stock. I will remain short in anticipation of more long liquidation. My lower target is at 50-day moving average (DMA) of the stock, which is around Rs 645 and I will keep my stop loss at Rs 682. Q: You have got a strategy on Godrej Industries as well this morning?
 
A: Godrej Industries is one stock, which can move up in the market because it has a low leverage. In the last three months, it has consolidated around Rs 310 levels and essentially when it started moving from Rs 305 to Rs 315, we saw almost 25-28 percent of closure in OI. That gives me a sense that the shorts are stuck up and they are coming out from the stock and it can move upto Rs 335 also. You look at the delivery pick up, it has been good. In the last two sessions, we saw it has almost tripled in comparison to the previous session. So, overall I am getting a sense that the stock is on a good wicket and it can move up further. Q: Are you seeing fresh short positions in any of the infrastructure or real estate companies now? A: Yes, quite obviously these are formed in the last one week. If you look at particularly the stocks like Housing Development and Infrastructure Ltd (HDIL) or DB Realty recently, especially in HDIL we have seen the fresh shorts have been added. Whenever the stock is moving up, you see some kind of short covering because of that. I do not take out much out of this because very significantly they have come down. So, I would be cautious and I will avoid these stocks right now. In the construction space, the same kind of activity we saw in IVRCL. To my surprise, these stocks remain in a band for quite a long period. Still we have two-three stocks in the band. I think IVRCL remains there for quite a long and now it is giving up.