5630 critical for mkt, unwind short positions: 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: What did you make of the large foreign institutional investors (FIIs) number in the F&O segment yesterday? What is it suggesting for the way forward? A: If you look at the last five-six months, FIIs have remained active in the index future segment. You start from the month of February, they were short in index futures quite heavily. They started covering their positions in the month of April. Then in the month of May they started forming long positions in the index futures and now this month it is starting. It is a continuous closure of open interest (OI) by the FIIs index futures. Therefore, if you look at the Nifty and Bank Nifty OI levels, which were almost at 10-month high in the starting of this series, they are almost at the multi-month low levels. Such kind of liquidation we have seen in the OI. It is not a short built up yet in the index futures. So, we are not very negative in the market right now. It is just a long liquidation. Whatever longs they have formed in the previous month, they are just liquidating those positions. We have seen heavy cash unwinding in the debt market by the FIIs. Again if you look at the positions in index options, that is a sign of some worry in the short-term because in the last five-six sessions continuously they were buying the index options. I think it is mostly the out of the money (OTM) Put option starting from 5,500-5,700 strikes looking at the additions there continuously and the extent was 6,000 crore. So, in five-six sessions if they are buying such heavily, historically the tendency of the market has slipped downwards. We have already seen this buying happened at 5,900 and now we have already fallen 125 points, there may be another 100 points of fall but near 5,630 one should start unwinding short positions in the market. In index future as I mentioned, still we haven't seen any shorts by the FIIs. Now, 5,630 remains very critical level, this was February 2012 high below which we have already seen a significant fall till 4,800 and then this level was taken out. In the month of April, market saw a breakdown below this and during the same month, market provided respect to this level and immediately pulled back. This level will remain critical. If you look at 5,700 Puts where most of the positions have been rolled, they have been rolled at a premium of around Rs 70. So that also tells the same story that around 5,630 you should start unwinding your short positions in the market. Q: Yesterday we saw a lot of delivery base selling in many of these heavyweight banks, the likes of ICICI Bank, HDFC Bank etc. in your market are there any shorting opportunities there? A: In the private banking, it is more long liquidation that is happening and barring one-two stocks. However, you can pick public sector undertaking (PSU) banking where we have seen more consistent short built up that includes State Bank of India (SBI) also. One can still look at Punjab National Bank (PNB) because this stock has breached the consolidation of the last three-four weeks, which was around Rs 760-770. In the last two quarterly results we have seen that people had formed the long positions in this stock and this time around when it moved above the recent quarterly results, it just ended where it has started from January. So people are clearly stuck up in the long positions in this stock and it may drift down towards Rs 710-720 levels also.