Cherry pick stocks; 5700 key for Nifty: ICICI Direct

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

Also read: Mkt promising good returns on upside; buy on dips says Sukhani

Below is a verbatim transcript of the interview:

Q: You have a buy on Reliance Capital for the day?

A: Anil Dhirubhai Ambani Group (ADAG) stocks are in a good move right now. Even if the market comes down, we are seeing good run up in the stock. Reliance Capital recently had seen a profit booking from around Rs 370 to Rs 340 but from Rs 340 onwards consistently from 7,000 to 9,000 contracts almost 2,000 contracts have been added. These are more in the long side and now it has taken out Rs 370 levels. So, on the higher side Rs 410-415 levels can also be achieved. One can keep a stop loss around Rs 367 and remain positive in the stock.

Q: What did you make of the foreign institutional investors (FIIs) buying in Nifty options or index options rather yesterday’s Rs 660 crore and what is your call on the Nifty?

A: FII figures have remained quite muted. In the last couple of weeks, barring this Nifty options or index options buying, they are just hedging their portfolios. 5,400 Put also has seen accumulation for the last two-three sessions consistently. Our call on the market is that 5,670-5,700 is a very strong support for this series.

We will continue to remain stock specific positive for the time being. The declines in the index can also be bought. The reasons are if you look at the volatility in the market, it has cooled off quite sharply. It went up till 22 levels, now it is hovering around 18-19 levels, which could be the range for volatility in this month.

If we look at the Put open interest (OI) and the Call OI, the put-call ratio (PCR) OI is around 1.18 that justifies the fact that the Put OI is relatively higher than the Call.

You look at 5,600 Put, which is the highest base, it has around 85 lakh shares. The highest Call is somewhere around 70-74 lakh shares. So, starting from 5,600 to 5,800 you have 22 million shares total OI and starting from 5,900 to 6,100 you have only 16-17 million shares. So, the Put OI is much higher and the volatility has come down. That means the Put writers are forming good positions in the market and that is why the market is forming some support area around 5,670 or 5,700. That is why the stock specific positive moves can be seen. The declines intermediate profit bookings in the market can also be bought into.

Q: How are you going to map the Bank Nifty now and do you have any strategies within the banking space itself?

A: In the banking index, the heavyweights are very reluctant to perform. You look at the private banking or the public sector undertaking (PSU) banking starting from State Bank of India (SBI). We have seen that whatever pullbacks have come in the market, SBI is not showing any kind of strength at all.

If you look at the private banking heavyweights whether it is HDFC Bank or Axis Bank, we are seeing that they are 2-3 percent away from the resistance levels. So even if the upside comes, they are going to be little bit capped in the near-term. So Bank Nifty is more range bound.

You have the second highest Put base around 11,500 and that was written in the beginning of the series around Rs 200 premium and that is why again and again whenever it is coming down to 11,300, it is seeing a sort of bounce happening towards the higher levels. So, if it surpasses 11,500 in today’s trade, holds there, it may move towards the resistance level of 11,800. So 11,300 to 11,800 is the range for Bank Nifty. If you have to play anything in the banking index, look at the private bank in midcaps. They are looking little bit positive.

Yes Bank, IndusInd Bank were the outperformers before and there may be some kind of pullback if market is holding around these levels. In fact, in the last two sessions some short covering was seen in the midcap PSUs. For example, you look at Dena Bank. We saw good move in yesterday’s trade. Rs 70 is a good support area for Dena Bank. If it is holding around that, you can see another 3-4 percent of upmove in this stock.

Q: What kind of options data have you seen on Infosys ahead of earnings because we have seen implied volatility (IV) normally pick up ahead of its results and what is your strategy on Infosys as we head into that big day?

A: Volatility in Infosys has gone up to 70 percent. This has not happened in the last couple of sessions, this has happened in the last couple of weeks. One and a half weeks before we saw the volatility coming to 60-65 percent and now it is 70 percent.

If we look at the OI wise, last rollovers were very weak. It was only 55-60 percent and that means whosoever was short - because it was heavily shorted stock - they did not rollover the position in fact left to expire. Now in the current series we were seeing -- when it started at Rs 2,500 levels, the OI started moving up and when it came down to Rs 2,400, even then additions were seen in OI and then it moved up again back to Rs 2,500. These were some long additions, which were seen in Infosys.

If you look at the options data, in 2,300 Put from the month of May, some heavy OI additions were seen and the volatility there was subsiding for that particular strike. That means somebody was writing 2,300 Put options. It did not breach Rs 2,300 at all despite touching Rs 2,350 on numerous occasions afterwards this OI has been shifted to Rs 2,400. So Rs 2,400 right now is a good support area for Infosys. On the higher side in the Call options, 8 percent away Call strike of Rs 2,700 is seeing the OI additions. So Rs 2,400 to Rs 2,700 could be the range, let us see what comes out from the results.