August series to expire at 5400; short now: Angel Broking

Siddharth Bhamre of Angel Broking shares his views and gives insights on specific stocks and sectors.

Also read: IDFC at over 4-yr low; MSCI removes it post cut in FII cap

Below is the edited transcript of Bhamre’s interview to CNBC-TV18.

Q: The SGX Nifty is suggesting that a cut could be restricted to about 0.5 percent but what would your key strategy be on the index this morning?

A: Last week we were talking about how foreign institutional investors (FIIs) have sold around 5,400 Call options for a premium of Rs 95-100. So, we were not expecting significant upside above 5,450 in market and the reason being the selling of Call option is done.

Hence, if one were to add premium into 5,400, then that goes to 5,490. Therefore, we were expecting market to retrace back from those levels. Before that what has happened in the market is that FIIs were buying Put options and they have squared off those Put options. So, the severity in the fall would not happen and that was our comment last time.

Now, view is slightly different this time, we are not positive. Yesterday’s almost 1,000 crore of index futures short positions is not encouraging at all to expect that this market would probably bounce back to 5,600 or 5,700. At the same time, we are anticipating that this expiry, we may close around 5,400 because most of the positions which got formed in index Future yesterday, are in next series - September series and it is in Nifty and not much on Bank. Bank Nifty yesterday reduced the open interest and FIIs have formed fresh short positions. So, short positions have been formed.

Our call for the market from medium-term perspective is that we might go down further but not with the pace that market participants are expecting, certainly not in this series. We expect a closing around 5,400 and if at all one sees initial part bounce in next series, it should probably be till 5,500 or so. Hence, short this market. Yesterday they short positions worth Rs 1,000 crore, before that they have shorted in big way. These short positions do not happen for 4-5 percent fall in market. These short positions get formed for larger moves but one needs to time that move.

Q: You have a short on Hindalco Industries this morning?

A: We have seen rise in stock from Rs 85 to more than Rs 105. In this period we have seen only one day where we have seen formation of long position and that too was around Rs 95-96 odd levels.

The same kind of euphoria which we are seeing in metal stocks is not seen in London Metal Exchange (LME) over the base metal prices. People are rating Hindalco above Tata Steel, which might be true from valuation perspective. However, from trading perspective, I believe Rs 106 to Rs 108 is strong resistance for the stock.

If one has some long positions, people might book profit in them and at the same time I am expecting fresh formation of short position. So, between Rs 105 to Rs 107, I would like to short Hindalco, not for very big downside back to Rs 85 but probably till Rs 96-97.

Q: At what point would you suggest opening a fresh short position on the index and what could be the levels now that you would watch for on the downside?

A: We see it difficult for market to go above 5,500 levels even in next series, the initial part of course. So, if we see levels of 5,500, we would initiate fresh short positions. At the same time levels to watch for the downside would be around 5,300-5,280 below which probably a lot technical analysts would start talking about sub-5,000 levels. So, watch out for those levels. If those levels break then whatever talks in market are happening about 4,800 or probably beyond, might fructify.

Q: Would you open fresh shorts in the Bank Nifty?

A: We are short in some of the banking names but we are observing that too much of short positions have been formed especially in private sector names.

Axis Bank is now sub-Rs 1,000 levels and we are seeing huge build-up in it. In the last three trading sessions, we have seen more than 25-30 percent rise in open interest. So, when so much of negativity is there and you are already short, you do not initiate fresh short positions.

I do not know whether bounce would happen or not in banking because of the overhang but if one is not short and wants to short this index, he/she will have to wait for a bounce- a bounce probably of 300-400 points in Bank Nifty. If at all it happens then short and if it doesn’t then you have lost it.