Nifty may close this series above 5600: ICICI Direct

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

Below is a verbatim transcript of the interview:

Q: Just two days to go for expiry, what do you see the Nifty doing in these next 48 hours and the kind of note expiry happens on this time?

A: We had an opinion that 5,600-5,630 is going to be the critical support of the market. Yes, market has shown some sort of panic below 5,600 but still we are holding this opinion that this expiry should be above 5,600.

If you look at the total cash outflow by the foreign institutional investors (FIIs), we feel that around 40-45 percent of this cash outflow is by the arbitragers because the stock futures open interest (OI) was declining and we saw some buying happening in the stock futures by the FIIs to the extent of Rs 3,500 to 4,000. Simultaneously there was a clear cash outflow. So out of Rs 9,500 crore of cash outflow by the FIIs in this month, around Rs 4,000 crore is by the arbitragers.

That happened because the rupee was depreciating and they play with a very lower margins. With this rupee depreciation they close their positions. So we do not give too much of weightage to this particular outflow, which is only 50 percent and not total Rs 9,500 crore. That is why these levels are very important support areas.

Till expiry, the problem for the market is the heavy OI which is still left in the stock futures and Nifty futures. Close to 2 crore shares were still left in Nifty and in some heavyweights we have seen - that includes the private banking also – some of the OI positions are still quite high.

In the next two sessions, the pressure is likely to remain in market and we may not see very sharp recovery on the higher side. We may see 5,650 levels around expiry. If we look at the options data, 57 Call base is almost one crore shares, on the lower side 56 Put and 55 Put options are still holding the base of around 70-75 lakh shares. If somebody shorts 56 Call and Put option, the total premium is around Rs 70. So for someone who is taking the bet, on the lower side it could be 5,530-5,540 levels and on the higher side it is 5,670. I am not expecting the market to go below 5,550 in this expiry, it should be around 5,650.

Q: From the energy space you have a strategy as well on Oil and Natural Gas Corporation (ONGC) and Cairn India?

A: ONGC has outperformed the market. We have seen Nifty coming down heavily but ONGC has remained around Rs 300-320 levels. In the last couple of weeks people have tried to go short in the stock because they felt it will go beyond Rs 300 and the lower levels but that didn't happen. That is why the shorts are stuck up. So, towards expiry you may see some kind of a short covering in the stock. Rs 298 was the one and a half year base over which it found support again when it was coming down below Rs 300. That was a good support area from where it has bounced. 50-week moving average is also placed around Rs 298. So somehow the supports are found by ONGC and that is why it is a good buy level for the stock.

On the other hand it was a break down for Cairn India below Rs 300. The stock has tried numerous times to move above Rs 295-300 but it failed. So the OI levels, which has started climbing, is clearly in the short side and the short traders are making money also. They are going to leave their positions to expire near expiry and that is why the stock may not find any improvement from the current levels so you can go short in Cairn India and long in ONGC. This particular trade may give you some good money near expiry.