See more upside in mkt; buy on dips: Siddharth Bhamre

Stock markets opened on a promising note on the first trading day of 2013 with the BSE benchmark Sensex rising over 132 points in early trade on increased buying by funds as well as retail investors.

The 30-share index rose by 132.22 points, or 0.68 percent, to trade higher at 19,558.93 points with all the sectoral indices led by realty and metal, trading in positive zone with gains up to 1.23 per cent. Nifty rose by 37.90 points, or 0.64 per cent, to 5,943.

Siddharth Bhamre of Angel Broking, in an interview to CNBC-TV18 shared his reading and outlook on the futures and options markets.

He believes there is more upside left in this market. “We are confident that this market won't correct significantly and if at all on some days, you get correction of 80-100 points that would be a very good opportunity to again re-enter into this market,” he said

Below is the edited transcript of his interview on CNBC-TV18

Q: How are you calling the Nifty this morning?

A: We have spoken about how Foreign Institutional Investors (FIIs) are buying in cash market segment but activity in Futures and Options (F&O) was quite muted. The observation is that at the fag end of November and early part of December series, we saw market moving up significantly from 5,600-5,900 odd levels. At that point of time FIIs did form huge amount of long positions.

The rollover data of FIIs suggest that they have rolled over those positions. Though they have not formed their long or short positions in December, the positions formed during November and initial part of December has got rolled over. So, they continue to be bullish in the market from F&O angle as well. And we all know they have been buying in the cash market.

Also before this fiscal cliff we are seeing implied volatiltiy ( IV) is still around 13.5-14 percent level which is quite low. For January 2013, F&O series is starting with the lowest open interest in Put since June 2009  i.e 2.5 years low open interest in Put. So if people are so worried about fiscal cliff why they are not buying Put Option?

Our synopsis about this is that there are only talks about fiscal cliffs in market but nobody is taking any corresponding action whether it is long or short. If people are worried so much, especially FIIs about fiscal cliff then why they are buying so much in emerging markets like ours? All these factors put together we believe there is not much scope for correction in this market and so this is a buy on dips market. 

From a very short-term perspective, we are seeing that participants again are busy with the Option trades and this market is a stock specific market. We are expecting Nifty to bounce back again to 6,100 or closer to those levels.

There is an apprehension in the market that FIIs are accumulating 5500 Put Option and in the last two-three trading sessions we did see some build up over there. But one has to look at the premium as well. The premium is around Rs 7-8, so even if you have formed huge positions, your capital commitment is not more than Rs 1.5-2 crore. For Rs 1.5-2 crore of investment, in 5500 Put Option, why should I expect that market would come to 5500?

All these things are making us more and more confident that this market won't correct significantly and if at all some days you get correction of 80-100 points that would be a very good opportunity to again re-enter into this market. Our call is hold on to your long positions there are further upside left in this market before anything negative comes out.

Q: Do you have any picks in the banking space, a sector that has been the big star performer in 2012?

A: Yes, especially PSU banks we are more bullish. If you have gone though our rollover reports on Friday morning, we had clearly mentioned Punjab National Bank (PNB) where there are still lot of short positions. We were anticipating that at Rs 360 resistance there might be a breakout. In very dull and boring market of yesterday we have seen that breakout happening and the open interest has slightly reduced hardly 3 percent. I believe there is still further upside in PNB.

State Bank of India (SBI) we continue to be bullish on. Axis Bank we are not very positive because it is very light in terms of open interest so that cushion of short covering is gone. At these higher levels participants would be slightly varied about whether to form fresh longs or not. HDFC Bank which has been a slight underperformer and which constitutes highest weightage on Bank Nifty that would again start seeing formation of long positions. So these are few large cap names that we are looking at.

Although we are not advocating midcaps for a buy, we are seeing lot of long positions getting formed. These are some of institutions which are accumulating some midcap banks like Federal Bank, Dena Bank, UCO Bank, so we are seeing lot of accumulation over there. We won't advise long but traders from intraday perspective or from a perspective of a day or two, one can think of going long over here also.

Q: Within some of the high beta names like real estate, infrastructure etc, any trading ideas that you want to give us?

A: In capital goods there is Bharat Heavy Electricals (BHEL). There is strong support around Rs 215-220 is there but don’t expect stock to go to those levels. At current levels of Rs 225-226, one can go long over here. Some shorts which had got formed are still there, that short covering might come and you might see a bounce back in this stock upto Rs 245-250 levels probably not beyond that. So traders can think of this large cap.

We are also seeing lot of PSU names like ONGC and National Thermal Power Corporation (NTPC) attracting lot of attention. So there also one can think of going long. Jaiprakash Associates, DLF, even these names will see some kind of buying on dip strategies by large participants.

Q: It’s an extremely long series and it has got a lot of events baked into it. At this point are you recommending any positional strategies at all on the index?

A: As you rightly pointed out when the series started 34 days for expiry and IVs was as low as 11.5-12 percent, so this makes a good strategy to buy a straddle. I would suggest rather than buying it today, if volatility remains where it is right now at 13-14, then coming Friday that is second half of the day, if market is more or less here then one should go long 5,800 Put and 6000 Call. And next week onwards you might see slowly the news and the events trickling down and IVs going up. So that would be a very great strategy from two-three weeks perspective.

At the same time since our view is bullish and the bias is positive; once the IVs increase, you might think of making a ratio spread by going long in one 5,900 Call Option and by selling two 6,100 Call Option which would take your breakeven above 6,250 levels. We believe that would be a difficult level for market to cross in January series. So these are few strategies in Nifty which you can adopt but the main premise and the main strategy for the market would be if you get corrections, this is buy on dips market.