5650 key Nifty support; short Tata Global, M&M: Edelweiss

In an interview to CNBC-TV18, Atul Badkar, VP - Institutional Equities - Derivatives Desk at Edelweiss Securities spoke about the current trend in F&O market. He expects Nifty to be broadly in the range of 5,720 and 5,850 for the next few days.

On specific stocks, he is bearish on Tata Global Beverage and Mahindra and Mahindra and sees them as most lucrative shorting candidates. From the banking space,  ICICI Bank, Axis Bank and State Bank of India remain weak, so one can look to short them, he added. Also Read: Focus on exports push, trade deficit less urgent: S Naren

 Below is the verbatim transcript of his interview on CNBC-TV18 Q:  How should one approach the index after the fall that we have seen in the past many days? A: We started the August settlement with strong rollovers in both the index as well as the stock futures. The rollover cost was pretty strong and we also started with a pretty high open interest (OI) pace across the market. The last five trading sessions have been quite a washout. The Nifty for example has a 6 percent correction in an OI in five trading session which normally is not the case immediately after a settlement, close to 3 percent price correction. Similar things have happened across several stocks where you are seeing a lot of long positions being cut and fresh short positions being added. The market breadth has been extremely negative. There are only 6-7 stocks that are holding the index up and that is a bit concerning. The upside for this market is at 5, 850, which is where the 200 day moving average (DMA) is and will continue to act as a very strong resistance. 5,720 should hold but if it doesn’t hold, you directly have 5,650 and then it is a bit scary because you have a direct 150 point drop at around 5,450 levels. So we are looking at very strong important support levels from here onwards. By and large, I hope that 5,720 holds for a little longer but 5,650 is one level, which you should watch out for because if that breaks you are looking at 150 points fall immediately. So broadly between 5,720 and 5,850 is where next few days Nifty should be trading. Q: Are frontliners or broader markets the most lucrative shorting candidates that you can see right now? A: Quite a few. At this point, they would be Tata Global Beverage and Mahindra and Mahindra (M&M), which is looking at very short-term charts in the OI built up. I would not say short immediately on open because we will open slightly stronger today. At every rise, M&M and Tata Global Beverage looks like you can easily get a 5-8 percent downside here. Banks is another sector where you can continue to short at higher levels. Both private and public – sometimes you  feel that the public sector banks have already been beaten down so much but how much lower can you go? The cheap seems to be getting only cheaper. So among the private banks space, ICICI Bank or Axis Bank are looking weak on charts. State Bank of India (SBI) in the public bank space is looking weak. So at every rise you can continue shorting these banks but that is not a compulsive trade, we need to watch how the next few days will pan out. I don’t think there are too many events immediately that will guide the direction of the market. We had a heavy sell-off in the last three-four trading sessions. The market breadth has been extremely negative. You may not want to rush in to a short trade. The OI on index options, the 6,000 Call and the 5,700 Put is where the highest OI is. On Thursday, we saw close to a million shares added on the 5,300 Put, so that is some extreme protection buying. Don’t take any immediate shorts because in the past any trigger and all the shorts get covered very fast but banks primarily, autos basically a lot of rate sensitives can continue to be shorted at every rise.