Autos, private banks to do well in May series: Bhatnagar

Foreign institutional investors (FIIs) added long positions of USD140 million on Nifty Futures, if this trend continues then the Nifty could surpass its key resistances of 5,920-5,930 and breach 6000 in May series, believes Vineet Bhatnagar of PhilipCapital. 

Also Read: 5950 remains key resistance for Nifty; buy on dips: Sukhani “In the last 10 trading sessions, FIIs have reduced the long put positions and instead started building on the long call side of the market. Based on where the buildup is right now, 5900 strike is the one where there is maximum concentration,” he said in an interview to CNBC-TV18. The April series will expire today and most market experts see the series ending between 5800-5900 levels. Given the fact that macros are showing some signs of improvement and a repo rate cut of 25 basis points by the Reserve Bank of India (RBI) is widely expected on May 3, Bhatnagar says, private banks and autos will continue to look strong at least in the first few trading sessions of May series. However, he expects market participants to book profits if the central bank eases in May. Below is the verbatim transcript of Vineet Bhatnagar's interview on CNBC-TV18. Q: How is the positioning on expiry day as we roll forward to May? A: The positions are supportive of the current trend that has enfolded over the last 10 trading sessions. From the short position in the index Futures that was visible in the first half of this particular month to the extent of about USD 800 million, we are now witnessing a long position on Nifty Futures to the extent of about USD 140 million dollars by the foreign institutional investors (FIIs). There was also an inclination by the FIIs to continue adding on the puts when the market was falling particularly all strikes, 5500- 5400-5300 to the extent that in aggregate the put positions were about USD 3 billion. In the last 10 trading sessions, FIIs have reduced the long put positions and have started building on the long call side of the market here. Q: What will be your targets for the next series given the momentum seen in last five days? A: Based on where the buildup is right now, 5900 strike is the one where the maximum concentration is. Technically, one is looking at 5920-5930 as a resistance that needs to be taken off. If it is taken off, because the trend continues to be the way it has been in the last 10-15 days, then one is looking at 6000 being breached on the upside.

Q: What are you concluding from the buildups on specific sectors because private banks have done the best over the last few days but IT has not? Is there a shift in positions that have been built-up for May? A: The entire shift in the sentiment was the confluence of a few things that happened almost at the same time. The way crude reacted and gold fell through and both of them have bounced back since then. Also, the news on inflation numbers meant that equities in general were looking supportive across the region and perhaps even globally. Locally, the macro positions started looking better on account of less than worse situation as far as current account deficit (CAD) is concerned and also because of a possible rate cut by the RBI on May 03. What meant when people took positions on the long side was that interest rate sensitive sectors were the immediate favourites and that was visible in the financials and also in autos. Private banks were favourites and in autos too, we saw a support building up. Therefore, these two sectors will continue to look strong at least as we move into the first few trading sessions of May. _PAGEBREAK_ Q: Would you say that almost all the short covering by the institutional’s is done because that is a big reason for ferocious intraday moves on the Nifty? A: That is right, while the net long positions right now are still looking very small at about USD 140-150 million, I am talking about the index future. However, the trend has set in that the short covering has been done, short built-up has been moved out. Even from the single stock space the longs will set in. At the same time, the rollovers till Tuesday were below average, both for single stock Futures and index perhaps because yesterday was a trading holiday here. So, it remains to be seen whether the entire book that we are all sitting on in April will get moved on to May or no. It is quite possible that the rolls may be a bit below average but it should remain on the long side primarily because a 25bps is perhaps a street consensus and is therefore priced in. Financials or private banks have moved in so smartly that there may be a tendency by the smart traders and by the institution clients that instead of rolling the entire USD 100 book, rolling a USD 70 or USD 85 should be sufficient and that is the way we are expecting the market to pan out today.
Q: Are there any signs that the complete closure of shorts, the Put-Call ratio going up to 1.2 plus is leading the market into marginally overbought territory as we enter the May series? A: Put-Call ratio being one of the factors that we track but the more important proprietary indicator that we captured is the capitulation index. We do not focus too much on this particular indicator on the expiry days and so we ignored the reading. But if we were to look at what the reading was on Friday or Monday morning, it was in a neutral region which indicates that the trend that has been unfolding and is on the long side right now, should be supported. Only from Monday onwards, we will start relying or placing greater importance on this particular indicator. Q: The other two sectors that have seen a fairly sharp run this series are infrastructure, names like Reliance Infrastructure and real estate. Is there anything in particular that stands out from both those pockets going into the next series? A: I should have pointed out that these two also fall under the same broad classification of interest rate sensitive. Therefore, the theme that got captured when the longs for the Nifty bounced back so smartly and the long positions started building up also meant that infrastructure and real estate were the beneficiaries as well. If this were to continue, these two will show the long positions. However, if the entire activity is primarily due to the interest rate cut that we all are expecting in the first week of May from the central bank. If it were to be just 25 bps as everyone is expecting, then there could be profit booking that may set in. Q: What have you seen in IT, are there any fresh short positions that are getting built in the frontline names or has it been a case of large scale long unwinding? A: We have not seen any fresh unwinding in the frontline IT stocks. What I was hoping to see but have not verified it as of this morning is perhaps the pair trade that may come in and could buy Infosys and sell Tata Consultancy Services (TCS) primarily because Infosys on the back of the result announcements earlier this month had reacted quite sharply. So, what I anticipate but need to reconfirm is that whether there is a pair trade of long Infosys short TCS. Q: On the point you were making about the 6000 level as potential for this series, what would be the downside risk because through the course of these last few sessions volatility has started increasing quite a bit both locally and globally? A: The support should come again at the 200 day moving average because that is the important technical indicator that the market has been looking at. Earlier in the month, Nifty had pierced below it and for quite some time that acted as a very strong resistance. Having pierced it quite conclusively in the present uptrend, if Nifty were to react on the downside, that 200 day moving average should remain as a very strong support. It comes at above 5580-5600 right now but one needs to keep track of that because it may also start trending up.