Avoid high-beta stocks in banking, auto: HSBC Invest Direct

A lot of important events are stacked up for the markets over the next few days. In an interview to CNBC-TV18, Karun Mutha, HSBC Invest Direct says, in the last couple of trading sessions, the IVs (implied volatility) and puts have shot up because of the fear factor being high.

According to him, the momentum is still strong. He advises investors to be on the long side on any declines close to 5,000. “On the higher side, 5,150-5,200 should act as a resistance,” he adds. He suggests investors to avoid the high-beta stocks, particularly in the banking and the auto. Greek election, RBI meet: Udayan analyses impact on market Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: How are you asking your clients to position themselves for the Sunday night event and Monday morning? Have you recommended any hedges or any options strategy? A: In the last couple of trading sessions, the IVs (implied volatility) and puts have shot up because of the fear factor being high. On the yesterday’s trading zone, we have seen a bit of correction. That is natural to happen after the upmove that we had seen. We have positioned ourselves probably to look at the fact that the FIIs have been really strong on the buy side. It is clearly reflected from the numbers. Day before yesterday, they were buyer of almost Rs 1,000 crore on the index futures side. That is accompanied with increase in open interest. On the yesterday’s strike price activities, we have clearly seen a lot of unwinding on 5,100 puts. That clearly depicts that though the long futures were still held on, it seems that the put was used as an opportunity to hedge and then unwind. We clearly believe that the momentum is still strong. The IVs are sharper and higher, but that’s a good opportunity for option writers to sell options rather than play on the long side. As event unfolds on Monday, it is going to pacify the option prices, the IVs are suddenly going to collapse. So, option writers may get a large amount of money, if they get their directions are correct. Even though directions may not really be correct, but you will get a really good reasonable amount of money, when the IVs collapse. So, we are recommending a course to be on the long side on any declines close to 5,000. That’s a good opportunity to get in the market. On the higher side, 5,150-5,200 should act as a resistance. Implieds being largely at the peak, we would expect option writers to stay on the writing side, particularly 4,800 Put and 5,200 Call. Q: You are staying with the largecaps for next week. You are staying with big names like Lever, ITC, Reliance. A: Very true. I think it’s important to avoid the high-beta stocks, particularly in the banking and the auto. Infosys and TCS in the IT space, Hindustan Lever and ITC in the FMCG space have been gradual slow movers, but they have been keeping their pace. If you look at the IT stocks, particularly Infosys, the stock has done an addition for 100,000 shares on yesterday’s trading and it remained firm on the price move as well, in spite of the market falling. So, I think there is more strength available in the stock. We expect probably 1-1.5% move still further on a trading pattern on both the IT stocks. FMCG stocks should be accumulated at lower levels than at falls.