Nifty won't cross 5450 unless Germany okays ESM: HDFC Sec

Indian indices witnessed a positive session on Tuesday despite global cues being tepid. The session ended with marginal gains led by the financials. Nifty closed firmly above the crucial 5,350 level and the Sensex registered an 86 point gain.

VK Sharma of HDFC Securities told CNBC-TV18 that with Nifty inching closer to 5,400 mark, people would add further positions. Resistance for Nifty is seen around 5,450 levels.

However, Nifty won’t be able to breach that level on the upside unless the German Constitutional Court rules in favour of the European Stability Mechanism (ESM). He suggests buying 5,400 calls or 5,500 calls and hope that decision is pro-euro.

Below is edited transcript of Sharma's interview to CNBC-TV18.

Q: How should one approach the Nifty this morning?

A: The market is already knocking at 5,400, it closed at 5,390 yesterday so my sense is people would like to build their positions further. It will run into a good amount of resistance around 5,450 and it will be very difficult to cross unless we hear from the German court.

The options are very liquid so rather than taking risk in terms of buying the stock futures or index futures, my sense is people should buy 5,400 calls or 5,500 calls and hope that the decision goes right in Europe.

Q: You would be long on which bank today?

A: Both public sector undertaking (PSU) and the private sector banks have done well. Among the PSUs Bank of Baroda did well and open interest was added on the positive side. Although positions are still being pruned in the Bank Nifty, my sense is it could do better than the bank Nifty.

I am suggesting buying 660 Call which was available at around 9. Hold on till the end of the settlement and keep a stop loss at Rs 4. In case of ICICI Bank, it closed at 946 and 960 call is also available at around Rs 15, so one can keep a stop loss at around Rs 8 and hope to double gains. One can sell at Rs 30 or hold till the end of the settlement. Buying here would be better as compared to buying the Nifty per se.

Q: Do you have any trading idea in midcap IT pocket?

A: Both Hexaware and Rolta have done well yesterday. We had earlier suggested Hexaware since had broken out above Rs 130. These still have a long way to go. Between the two, Hexaware is slightly better placed in terms that the rise yesterday wasn’t as high.

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In terms of Rolta the price action was pretty good. If it were to tone down and maybe was able to hold on to its yesterday’s levels then somewhere midway during the session I would like to buy Rolta in terms of a Call.

Q: You have a trading strategy on GSPL, how would you approach it today?

A: It all depends upon what the market feels like. Our sense is that one can buy the Rs 75 call. Yesterday, it was quoting at around Rs 2, so if the stock was to dip maybe at around Rs 70 then this call premium would vanish and maybe it would be available at around 0.50 paise or so.

I will suggest buying Rs 75 call till the market understands what GSPL has to say. We will also have to hear from the company, but my sense is that it may not have to pay anything as far as the history is concerned because if it has to pay somebody, it has to collect from somebody else also. So, it might be neutral.

What at the most worrying is that the company will have to pay system use gas (SUG) charges, which were 0.3% and were disallowed. There are two kinds of expenses in the pipeline, one is related to the compressors that they use, which the company does not have right now, but charges something for the leakage of gas in the system.

The Petroleum and Natural Gas Regulatory Board (PNGRB) says because it is compact, it is not allowed, so maybe it will have a Rs 70 crore loss of revenue going forward, not historic. But as soon as it installs compressors, it will be able to charge these charges under that head. It will be a temporary blip, so I will be willing to buy the dips in GSPL.

Q: You have a strategy on Balrampur Chini?

A: It’s a bull spread here. I suggest buying 70 Call at around Rs 2.10 paise and sell 75 Call at around 70 paise. So, the cost would come to Rs 1.40 paise and the maximum possible gains would be 3.6. Your risk is 1.40 and maximum possible gain is 3.6. To that extent, this is a good way to participate with a limited amount of loss and limited amount of gain as well.

Q: What is the call on Century Textile now?

A: This is one of the popular stocks where options are available and volumes are also good. Positions are being added on the longer side. Yesterday, we saw positions being added to the extent of 3% with an equal amount of jump in the price. I am suggesting buying 360 Call at Rs 5, keep a stop loss of Rs 2 and hope to sell this at around Rs 12, so a good possibility of gains here.