Not too bullish on Nifty, buy ICICI Bank, Idea: HDFC Sec

In an interview to CNBC-TV18 VK Sharma of HDFC Securities shared views on the F&O market.

Also Read: Build intraday longs; Nifty to crack 5550 soon: Sukhani

Sharma is not too bullish on the Nifty but talking stock specific, Sharma suggests buying ICICI Bank at around Rs 40, keeping a stop loss of Rs 30. He also recommends buying Idea cellular at around Rs 8 with a stop loss at Rs 6.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: How are you approaching the index? What kind of positions are traders taking on the Nifty now?
A: In terms of Calls people are writing 5700 Calls still, although the Calls are clustered around the levels of 6000, but 5700 Calls are being written. So, the markets are not very bullish, but a hammer has been formed and this would indicate that the Nifty can rise if it retraces 33 percent of the fall maybe to a level of 5815 to about 5850 where the 200 Day moving average (DMA) rests. This gives you a possible upside of 60 plus points. Only nimble footed traders can play this, however for the investors at large, although all the stocks that I have recommended are on the long side, but this is only for two days.

Q: How are you approaching the banks now after their recent damage?
A: One should look at those banks that have already given out results. ICICI Bank for that matter looks slightly better placed, although we have just taken 1000 point gains in the Nifty by recommending a short position. But this bank which has already given a good result is best placed.
In terms of ICICI, I am suggesting buying the 920 call which was available at around Rs 40, keep a stop loss of Rs 30 and hope to sell this at Rs 60. If at any point of time you feel that the market is going down you can have a tighter stop loss in calls that you are buying.
In terms of State Bank of India (SBI), one will have to be very clear that results have not come, so there could be a negative surprise. So if you are going long, you better do a bull spread.
While you are buying the 750 Call also write the 1900 Call. So by buying at Rs 68 and selling at Rs 33 your cost comes to Rs 45 and your possible gains come to Rs 105. So the ratio is not very good, but nimble-footedness will come in your way when you are doing a bull spread, because coming out of both the two legs will be difficult. Therefore, just buying a Call and keeping the stop loss would be a better idea. Disclosure: VK Sharma has personal holdings in ICICI Bank. Q: What about telecom stocks? What kind of position are you building on them?
A: This is one sector along with pharma which continues to do well. Idea Cellular has formed a new high. Positions were built across the board across all the companies in the sector. Between Bharti Airtel and Idea, I like Idea more which closed at Rs 169 with positions being built quite aggressively.
Almost 43 positions were built and there was 8 percent rise in the stock. So I am suggesting to buy 170 Call at around Rs 8 with a stop loss at Rs 6 and hoping to sell this at Rs 12. Obviously, the upper target can be further raised.

Q: Would you still back the strength in telecom?
A: Due to positions building in all telecom companies you will have to continue to go long. This market is giving opportunities and is in very small number of sectors. Telecom continues to be one. Among that I like Idea the most. You can look at buying the 170 Call which is available at around Rs 8, put a stop loss at Rs 6 and hope to sell this at Rs 12. This target can obviously be raised as the stock progresses. Q: What happened finally with the oil and gas stocks, one day down 9 percent, then a sharp rebound on them? What kind of position build up do you see in your market on those faces?
A: You have seen positions build across in all those stocks. These are the stocks that will sell on news. The news on Wednesday was that the price will be hiked and they have been hiked. So they continue to be sell on rallies and even in this market while the Oil Ministry says it is not the proper time for Indian Oil Corporation (IOC) to come out with the offer-for-sale (OFS) one of the Empowered Group of Ministers (EGoM) is further looking at it. So this continues to be a sector where you still cannot convincingly build positions and if you hold these stocks writing higher Calls maybe a good idea.
Q: Are you also seeing a short build up on fast moving consumer goods (FMCG) like Hindustan Unilever (HUL) and ITC?
A: Some shorts have been seen, but when I was looking at the top 10 stocks where the open interest (OI) position is you have only two banks and three FMCG stocks. So this large number of positions in the FMCG stocks need not be construed as the short positions will continue for long.
A portion of them are still people who are writing Puts at lower levels. So I would not be a seller in these stocks, although the data would indicate. I would not sell these stocks. In fact if they were to fall further lower down the line I will put both ITC and HUL to write Puts.