Nifty to hover in 5840-6150 for few weeks: ICICI Direct

In an interview to CNBC-TV18 Amit Gupta of ICICI Direct shared his reading and outlook on the Futures and Options market. He expects Nifty to be in the range of 5840-6150 for the next two or three weeks.

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Below is the verbatim transcript of Amit Gupta's interview on CNBC-TV18

Q: Fairly large cut in your market on Friday and it looked like there was quite a bit of long unwinding. How are you approaching the index this morning and what kind of bias do you have?

A: We are still into a consolidation like the month of May. The kind of fall that we had on Friday, I do not see that crack coming up in the coming sessions. It will be more a range bound scenario where little bit of profit booking maybe seen, the follow-up of the last session, but not in a major way. The major reason why this is happening is that open interest (OI) has zoomed up very fast in May.

We saw almost 20 percent of stock Futures' OI rising. Also, the Nifty and Bank Nifty OI which was at 10-month high and all of these positions were rolled into the month of June. We had a pretty good rollover from May to June and this OI base was pretty high in the month of May. Some more long liquidation can be seen in the stock Futures or in the Nifty, but on the downside 5920 remains a critical support.

Overall, I expect some kind of bounce once it is touching 5920 and over the weeks 5840 should not be taken out on the downside in the month of June. So, it is a consolidation happening above 5840. Stock specific volatility will continue, because there the OI is pretty high. But overall, major cracks may not be seen, because foreign institutional investors (FII) have not created any short in index Futures so far.

We are carrying that story for the last one or two months from the mid of April that till FIIs do not form the short positions in index Futures we should not be overly worried about the market. It maybe a little bit of profit booking and then again market might start performing. You look at the Options build up. 5800-5900 Put Options hold one of the highest base still and on higher side 6100-6200 Call Options. So 5840-50 on the downside and 6150 on the higher side maybe the range for two or three weeks from hereon.

Q: There were marginal long positions added in the entire IT space on Friday, that space pretty much bucked the trend. Would you buy Infosys this morning?

A: In the last month, when Infosys was falling somebody rolled 2300 Put Options with quite number of lots, so that gave us a sense that it will be a good support for the stock. We saw it coming down on profit booking twice, but that did not breach. It did not breach Rs 2,300 levels.

2350 Put Options in the month of June is also having a good OI base. Net addition was highest in that particular strike. Overall, this particular stock is ripe for a particular move on the higher side. It can go up to Rs 2,470 also. If you compare with Tata Consultancy Services (TCS) or HCL Tech it is going to outperform looking at the number of shorts present in the stock and looking at where the currency is placed right now. So, I do not see a major immediate downside in currency. It may hover around 56.50-57.00 levels which can provide some comfort to the IT stocks in the near-term.

Infosys because of the heavy short build up is more likely to see more short covering and we saw that in the last session as well. It outperformed its peers. Rs 2,406 is the level which is the good retracement level of the overall fall from Rs 2,600-2,190. It tried to close above that on May 22. It failed to close above this, but now after this profit booking and the recent uptrend, it has closed above Rs 2,406. So, it is a good short-term trend for the stock and on the higher side it will try to move towards the higher retracements of Rs 2,470 now.

Q: What kind of position build up are you seeing on the Bank Nifty? What kind of targets are Future and Option (F&O) traders looking at over there?

A: The PSU banks have remained weak. State Bank of India (SBI) has also breached the crucial level of Rs 2,080 and on the downside slowly it may move towards Rs 1,970 levels also and from there I see a recovery in the stock. The midcap PSUs are also not performing to that extent.

In the last session, we saw only long liquidation happening in private banking, but there was some major short build up coming up in PSUs. If you pick up the top 10 stocks in the banking segment OI-wise, then you will see 80 percent of the stocks were the PSU banks where we had the short build up. For Bank Nifty, 13000 Call strike was the highest in the month of May. The same thing was rolled into the month of June and the same thing happened in Nifty as well.

6200 Call strike was the highest which was rolled into the month of June and now slowly what we are seeing in Nifty at 6100 the Call base is increasing, same thing has happened at 12700-12800 levels in Bank Nifty. At least for a week or so, 12750 around the index will find resistance. If it is coming over there one can remain short, just because one of the segments have remained weak in the banking space. On the downside somewhere around 12200, if that comes, you revert your short positions and become a buyer.

Q: Amongst the heavyweights, any specific stocks on which you saw a big build up of short positions on Friday, the ones you would watch this morning?

A: We saw that in DLF, Larsen and Toubro (L&T). We are continuously seeing the build up of short positions in these stocks. In SBI also we have seen the shorts coming up. As long as you are in this range bound to bearish bias kind of scenario, you will see these stocks not performing. The private banking is going to outperform the PSUs in the coming sessions, because there is no short build up there at least. If you look at the HDFC Group, there the outperformance is likely to continue.