Don't get carried away by Sept expiry; see weak Oct: Expert

VK Sharma of HDFC Securities, in an interview to CNBC-TV18, shared his outlook on the F&O segment and how one should expect the Nifty to perform in October series.

Also read: Easy central bank policy risks new crises: Rajan Below is the edited transcript of his interview to CNBC-TV18. Q: Since we have a heavy index behind us and we are heading into result season, broadly how are you approaching the Nifty now? A: We have to take into account the history and current positions. October is the weakest of the months. If you look at the last 23 years, the average fall has been 2.37 percent. Also, we should not forget when September has risen; there are 15 instances in the last 23 years, October in 10 out of 15 cases has given negative returns. So, overall, the tendency is to not get carried away although the market has shown enough strength. From 5118 on the lower side to 6142 on the higher side and these 1224 points rise in the Nifty since August 28, the market has corrected to a level of 33 percent which is a good level and 5800 has held like a rock. With 5800 as a good support, one should not ask for too much in October; more than 150-200 points. Thereafter, if we cross that hump of 6150, then we will relook. Currently, we need not get carried away and understand that September was a culmination of events and positions that were taken during the month. They do not necessarily mean anything for October. Q: For the very near term, a close above what level will convince you that a fresh long position can be taken on the index? Is it this level itself? A: We do not go by where the markets have closed. We will see how trading happens in two days and what are the new positions taken in the new settlement. That will make me lighten the commitments till we go to a level of may be anything above 6050; this is a level to lighten commitments and reach at your stance if 6150 is crossed. Till that is crossed, I don't think you should go overboard in terms of buying. _PAGEBREAK_ Q: Sun Pharma had a new high yesterday and there has been some fundamental news backing it as well. Technically you would buy it today? A: I would buy it from a perspective of this comfort that it has done well in derivatives too. We have seen open interest being added although the stock has made new high. It is comfortably one of the best stocks to be had in the portfolio. How long can you continue to buy Sun Pharma? Just for traders there is a 600 Call I am suggesting which is available at around Rs 23. Keep a stop loss at Rs 18 and have a target of Rs 34. Traders here will have to be nimble-footed Q: What about ICICI Bank; that stock also was 17 percent higher in this contract? A: Yes, this was one of the better performing banks and it is one of the better private sector banks also to look at. But I would like to see how the market behaves till about Monday. But I am willing to buy ICICI Bank low down the line. Thursday, we saw the 960 Call which was available at around Rs 50. I am willing to buy it around Rs 45, keep a stop loss at around Rs 35 and hope to sell it at Rs 70. Q: What are you bullish on? A: I am not at all bullish on index heavyweights. However, if one wants to pick a stock that will give slightly better returns and not fall much, choose ITC. The stock closed at Rs 349 yesterday. Positions were built, marginally it went up by 1 percent, and positions were built to the extent of 6 percent. I am suggesting buying the 350 call which was available at around Rs 15, keep a stop loss of Rs 12 and sell it around Rs 22. You will have to be nimble-footed, do not allow even the call option premium to be wasted if the target is not reached in three-four days. Q: What is your strategy on Bharat Heavy Electricals (BHEL) and Reliance Industries? A: If BHEL has gone up almost by 40 percent from the bottom levels, it doesn’t make sense because the economy is yet to bottom out and the company margins fundamentally are eroding. It will be able to sell but the project execution is going to be an issue here onwards. So I will not be willing to buy BHEL at this level, I would wait for the price to dip. For Reliance, it is used essentially to keep the Nifty below the 5900 levels. However, if the fall was true then I would suggest buying the 840 Put at around Rs 28, keep a stop loss at Rs 20 and hope to sell it at Rs 45. So, if the market is going to open higher almost by 0.5 percent you have to then buy this Put at a slightly lower price than Rs 28 If it comes to may be around Rs 24 you can buy that, keep a stop loss at Rs 28 and hope to get out may be at Rs 40. Q: What is your strategy on Tata Communications? A: It is clearly turning around fundamentally. The stock was under pressure largely because of the fact that Tatas were selling in order to ensure that they are holding together with the government, doesn’t exceed 75 percent. It has the largest underground cable network in the world communication wise and in terms of voice it is the largest wholesale carrier in the world. So that business is growing at a rate of 29, percent which will continue to grow which is internet-led. Things are going to go better for the stock and give it may be a year or so you could find the stock may be around Rs 240. Today, in terms of strategy, Options are not very liquid here. Buying the Futures at around Rs 189, keeping the stop loss of Rs 186 and hoping for a price target of Rs 200 within settlement would not be a bad idea. Q: What is your strategy on Aurobindo Pharma? A: Aurobindo Options are liquid, but the stock has a huge resistance at around Rs 195. You have to take a leap of faith. Probably, the stock will be able to do well. So buying the 200 Call at around Rs 10 premium, you keep a stop loss at Rs 7 and have a target of Rs 16. But you have to be nimble footed, don't allow even the Rs 10 Option price premium that you pay to vanish, do keep a stop loss at Rs 7. Q. What do you think about ABG Shipyard? A: We would avoid it because you don't run after a bus. In this market, you will have opportunity, just look on your right, there are may such ABG Shipyards coming your way. Have patience and we really don't like stocks which jump with a gap.