Upside for Nifty capped at 6000 in near-term: ICICI Direct

In an interview to CNBC-TV18, Amit Gupta, Head- Derivatives at ICICI Direct spoke about the outlook for the F&O market.

Below is a verbatim transcript of the interview: Q: How are you reading the internals of your market? Yesterday it looked like there was some more long unwinding. How do you think traders or institutional investors are positioning themselves on the index now? A: We have advised our clients to buy any panic below 5,700. 5,630 as I mentioned last time is a very critical support for the market. There are multiple reasons why this level is very critical. We have seen the 57 Put base, which was the highest in the starting of this series is still holding the base and that is written mainly around Rs 50-70, so that is why also 5,630-5,650 is a critical support area. Whenever market is seeing some profit booking, because it is going to be some sort of consolidation in the near-term you look at what happened in the last four or five sessions. In index Futures when the market was moving up we saw again the addition was coming and around 30-40 lakh shares have been added so far. Out of this the major contribution is by the Foreign Institutional Investors (FII). In index futures they are continuously adding the positions and that is also in the short side. If you look at the bases, the futures and the spot difference is also shrinking. It has come down from the premium into discount and for last two sessions consistently it was in discount. The positions are being taken before this US Federal Open Market Committee (FOMC) meet and they are hedging their portfolios by shorting the index futures. In cash they have done a selloff around Rs 3,000 crore but that is not much significant what happened previously in the debt market. Still equity is much safer in terms of lesser selloff by the FIIs. So overall the scenario looks like we are into consolidation. The lower implied volatility (IV) also favours the same. If you look at India volatility index (VIX) it was at one year high around 19.5, but now it is around 18 levels. So it has come down from those levels and in yesterday's trade also we did not see any kind of option buying before this event. That suggests whatever event comes the downsides are likely to be arrested around 5,650-5,700 and on the higher side if we are going up, then 5,950-6,000 upsides also seems to be arrested in the near-term. Q: Anything that stands out from these two pockets in your part of the market, IT and telecom? A: In IT particularly we like Infosys for the short-term perspective. What happened in the month of May was really supportive for this stock. We saw the strong hands took position of around 2,200 contracts in a single day in the 23 Put options and the IVs came down that time. The stock was falling. I give a lot of credit to that particular transaction. That clearly means that they have written 23 Put options and they had a feeling that the short-term base is formed around Rs 2,300. After that we saw the stock coming down towards Rs 2,340-2,350 levels, but it did not breach Rs 2,300 levels. Then the positions were rolled into the month of June. So in June also we have a good base around Rs 2,300. If you look at the futures open interest (OI), since the last month it has declined by 23 percent. That means slowly the shorts are exiting from the stock, then in the second week of July you have the quarterly results of Infosys going to come out. Before that also you can expect some kind of short covering in the stock looking at at least this particular pattern of last 20-25 sessions. One can remain positive in the stock. In Rs 2,420-2,440 range you can initiate you can initiate your long positions and I am expecting this stock to go beyond Rs 2,500. You can keep your stop loss around Rs 2,350.