Banks in for short covering; book profit in IT: HSBC Invest

In an interview to CNBC-TV18 Karun Mutha of HSBC Invest Direct shared his views on F&O market and various stocks.

Below is the edited transcript of Karun Mutha’s interview with CNBC-TV18 Q: What did you notice in your markets yesterday which led to that big collapse and where do you see expiry now? A: In the August series FIIs have been continuously on the sell side particularly in the index Futures and the total accumulation goes to almost Rs 9500 crore, which includes unwinding of long positions and creation of fresh short positions. I wouldn’t be surprised even if we see a rollover of that happening to September series. We have seen the cost of carry of the September series almost going cheap by 28 points to the fair value. The volatility index is inching towards a breakup of earlier highs of 2011 close to 31 level and that has an inverse correlation with the Nifty. If it does that then we will see a marginal or slightly precipitated further correction on Nifty. Also Read: Mkt to focus on Syria now; buy select financials, says Ambit Cap But I will still hold that thought for a moment. I will look at 5200 as an area where we can see a small bounce back happening. The maximum pain area for August continues to be at around 5300 levels where we have seen equilibrium developing for Puts and Calls. That is the area where buyers lost the most. We expect the markets to move slightly on the upside after a gap down opening to make an expiry towards 5300. Similar instances were also seen on September series wherein 5300 Puts have been making a large accumulation on the open interest. I would still hold that negative thought which to a large extent most of the investors or traders have in their mind looking at the markets collapse. We may take a chance at around 5200 level where we can witness some bounce back and then take on further trades in the September series. Q: How would you approach HDFC and HDFC Bank that saw a big crack yesterday? A: We have seen building up of short positions in banks. Private sector banks were the last ones to crack on. In the short-term or for a trading bet, they have been overdone. Some kind of accumulation could be seen at lower levels or on a gap down opening today. That should be an opportunity to trade on buying at lower levels. Q: Which are the stocks that you would watch out for where you might have to see some unusual moves because of big open positions where you may see sudden short covering or perhaps serious shorting? A: It is evident, private sector banks have seen short positions being build-up over the August series. The largest cut has been on the banking sector. So, some short covering will emerge in the banking space. Apart from that, it is important to notice that IT has not cracked down. It has support from the rupee, but over a period of last week we have seen prices correcting and some unwinding of long positions on the derivative side. So, one has to be careful before any long positions are being initiated. Profit booking is wise strategy to play IT.