Expect flat Oct series; see Nifty at 5800-5850: IIFL

On expiry Thursday, the Nifty closed marginally lower at 5649.50. However, the September series was quite strong and the Indian equity benchmarks rallied over 6 percent. Manoj Murlidharan, Assoc VP- Derivatives at IIFL believes the current market rally was largely fuelled by liquidity coming in from foreign institutional investors. According to him, the Nifty has topped out and not only for the October series, it is likely to hover around 5800-5850 for the rest of 2012.

"In terms of contract, October might be flat or at least a 3-4 percent negative month. We are selling calls and we are shorting the Nifty," added Murlidharan. Here is the edited transcript of the interview on CNBC-TV18. Q: Where do you see expiry at this time around and what is the last one hour trading action that you are seeing? Any individual trades that you would advise?
A: The thing is it was Bank Nifty which had almost Rs 7 lakhs and it had to be rolled into the next contract. As per the fresh open interest which a new contract starts with, if you see the Nifty current month also, the premium started going up. That is because of short rolls which are happening.
Obviously, when you do a short roll you buy the current month and you sell the next month. We are seeing some short rolls happening not only on the bank Nifty but, also in the Nifty. We expect that even before the expiry. I guess the institutional activity was almost Rs 2000 crore of selling in index option and we believe it was 57 call and 56 put.
It is needless to say 57 was a resistance that we saw today and we have advised our clients to short at that point of time. Now, we feel there can be a VWAP based selling, especially on the banking side possibly 18-24 points and may be the low for today might be closer to 5620. We are expecting the expiry at 5635-5645. Also read: MF Global's advice for Oct series: Sell 5400 Put, 5800 Call Q: What is the sense you are getting about the October series and the kind of trends that we will witness there?
A: Just a week before when the VIX made a low at 14.6 and it inched all the way to 19.2, it happens to be a standard deviation. What I am trying to say is, we feel that Nifty has topped out. Not only for October, for the entire calendar year 2012 we feel Nifty is not going beyond 5800-5850.
We have booked all the longs, we have actually shorted the Nifty at 5720 expecting it to correct all the way to 5400-5500. In terms of contract October might be flat or at least a 3-4 percent negative month. That is what we are expecting. We are selling calls and we are shorting the Nifty. Q: What might lead the Nifty lower if there is a correction to about 5400 and is there any strategy in terms of individual stocks that you will recommend to play the downside apart from the Nifty strategy which you indicated?
A: If you look at the stats, this entire rally is because of the liquidity that has come into the market. FIIs found close to Rs 22,000 cumulative in the last three months.