Expect profit booking if Nifty takes out 5340: ICICI Direct

Head of derivatives at ICICI Direct Amit Gupta tells CNBC-TV18 that short covering or profit booking will kick in if the Nifty moves above 5340. “But till we come above 5400, we may keep on trading in a range,” he said.

On the downside, based on the fact that 10 lakh shares have been added on to Nifty futures, Gupta sees 5275 as a strong support for the market. Gupta is positive on Bajaj Auto and HCL Tech, where he a buy on declines call. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: How are you calling the Nifty for the rest of the series given the kind of pullback that we saw yesterday? A: If you see, the highest foot base in the market it is still at 5,200 and despite a lot of jitters we didn’t see any significant closure in these positions. This signifies that 5,180-5,200 is going to be the major support for the market on declines. If you look at the higher side, since the starting of the series 5,400 call is holding one of the highest base so any major short covering is likely to come above 5,400 only and otherwise we may keep on trading in this range. If you look at the Nifty futures additions, it has not been very significant barring the last session. 17% of closure we already saw in the starting of the series which shows that Nifty traders were not betting on the directional trade and the market just traded in a range. If you look at the last session, we saw that 10 lakh shares added in Nifty futures and the premium also widened which suggests that some long additions have come into Nifty futures. If I believe that these are some strong hands, we need to pick up one intermediate level in the Nifty which should be held in any case and that level is 5,275-5,280. In the last four weeks, we have seen lows, closing or the opening coinciding with this particular range. Hence, I believe that if strong hands have entered Nifty futures, then 5,275 should not be taken out. If this level is taken out, that means it was just momentum traders who entered and that long liquidation is happening. So go long in the market with a stop below 5,275, you will have a better risk reward. On the higher side, 5,340, which is a 50 day moving average, will be the first target. If the market is able to take it out, then you will have more short covering towards the previous stop of 5,379 or 5,400. Q: From the rate sensitive you have a strategy on Bajaj Auto? A: If you look at autos, barring Tata Motors we haven’t seen momentum coming up in the rest of the pack. But if you look at Bajaj Auto, which also fell from mid March when the Nifty was tanking, we have seen that when the market was slowly making a bottom formation around 5,150-5,200, this stock also was making the higher bottoms. During this process, we saw open interest getting closed on whatever short built-up came from Rs 1800 levels till Rs 1600. It is around Rs 1,650 that we have seen some good delivery pickup in Bajaj Auto. So I feel that Rs 1,650 is going to be the critical support level for the stock and your stop loss should be below that. So go long on declines in Bajaj Auto, I think Rs 1,720 immediately is going to hit. Q: What are you seeing on technology formations in names like Infosys, HCL Tech even TCS in terms of the actions in the futures market and what are you telling your clients to do? A: In 2011, we saw that lot of pair trades were found where the people were going long in tier one TCS and Infosys and they were going short in Wipro and HCL Tech. This is where TCS and Infosys were continuously trading above critical moving averages and these stocks were going down. But the reversal has started already happening. If you look at the open interest positions, since the last quarter we have seen that in all these four stocks around 40% closure in open interest. But if you look at the long liquidation, it has happened mostly in Infosys and TCS and now from hereon HCL Tech and Wipro are going to perform. I think HCL Tech Rs 470 below it has not come down yet since it is consolidating from the month of Feb so I think that is a critical level. Your stop losses should be around Rs 470 if today you want to trade in that stock.