Nifty to expire around 5,350 in Aug series: MF Global

As August series expires on Thursday, Vineet Bhatnagar, MF Global feels that rollovers indicate long bias will be maintained. He is expecting the Nifty to expire around 5350 levels in this series.

In an interview to CNBC-TV18 he said, "Individual stocks are actually looking weakish or a bit wobbly and therefore expiry may still happen at 5,350 or thereabouts. It is quite possible that the follow-on that we are expecting to see in the first week of September or thereafter may come for real." As a strategy, he maintains a long bias on IT sector particularly TCS. Also read: See Aug expiry at 5350; bet on FMCG, pharma says ICICI Direct Q: The Nifty is still holding 5,300, but so many stocks have broken down. Is the August series, which has been good for the Nifty ending on a little sour note? A: There are just a couple of trading sessions left before we go into the next series. But at this point in time, based on the rollovers that we have seen both for Nifty index futures as well as index options and for single stock futures – there seems to be a long bias. That is quite visible from the way the Nifty rolls spreads have expanded in the last two days from 26 to 32. So, there is an indication that there is a long bias. August session was obviously one where we have seen the FIIs take long side of the Nifty futures and increase their open interest by as much as about 60-70% over the previous month. Likewise, even in the underlying cash market there is a net purchase even if you remove the stock future versus cash related arbitrage books to the extent of about 7,000-7,500 crore. So, August has gone off well. But, I share your sentiment in terms of the number of stocks that are actually looking weakish or a bit wobbly. Therefore, while expiry may still happen at 5,350 or thereabouts, it is quite possible that the follow-on that we are expecting to see in the first week of September or thereafter may come for real. Q: What have you made of the FII activity in the futures and options market over the last few days? A: From the roll activity in terms of books getting rolled from August to September, the current roll numbers that we have are in line with the average that we have seen over the last few months. Nifty Index Future roll book was looking lower than the average till yesterday. But, the figures this morning are looking pretty much in line with what the average is. So, from that particular perspective it doesn’t look that the approach to index in futures segment from FIIs has changed which therefore still remains a long bias. Q: How have you read the consistent drop in the India Volatility Index (VIX) through this series? A: Almost for a month or so, we were looking at the way the implied volatilities and of course India VIX was falling. There was a period of time where it was as low as about 11.5-12% for some of the at-the-money (ATM) volatility for Nifty options. But in the last day or so, it has all come back to about 14.5-15.5 type of readings. Therefore, what we saw such as the 300 point move in Nifty between last expiry and today was characterized by a low volatility environment which was perhaps symptomatic of complacency. Therefore, anything that one could have expected in terms of piercing through 5,400 or 5,500 did not happen. At the same time, there was no sharp correction that one has witnessed so as to break below 5,250-5,280. But that may change because volatilities are rising and if 5,280 on the downside does get broken which looks likely because the number of components in Nifty which can hold it up is reducing almost every trading day. Then we will see that there could be a slide down supported by slightly higher volatility landscape. _PAGEBREAK_ Q: What are you telling your clients to do post the rollovers, an early outlook for September? A: The best way to take a position in the market right now and of course we are looking at it from the point of view of a trader’s book as against a portfolio manager, is one where you could trade only Nifty. Because it is very difficult to trade quickly in and out of the individual names just the way they have been behaving over the last few trading sessions. So, we are talking about selling PUT at 5200, which is where the concentration is and selling another CALL at 5600, which is really the outer range for the market as can be seen from where the concentration of CALLs are. Q: You would still keep the higher end of CALL writing at 5600 or do you think it may make sense to bring it a notch lower maybe to 5500? A: The concentration is at 5500. We would recommend a stop loss for the upside beyond 5500. Likewise, for the downside the stop loss should be triggered below 5280. So, while the strikes we are recommending is 5200 and 5600, the stops are at 5280 and 5500. Q: What would you tell traders to do the Bank Nifty because that has looked a bit vulnerable over the last week? A: It is a stay aside kind of recommendation that we will provide as far as trading the Bank Nifty is concerned. Clearly, the bias is on the negative. A quick trade in and out could take some advantage, but some of the frontliners have already fallen. The second liners are also looking weakish from yesterday. We saw weakness in names like Federal Bank, even Kotak Mahindra Bank. So, overall the sectoral index should continue to look weakish. But, this is also an index which has been volatile and in many ways a bellwether for the broad based market place. So, trade the Nifty. Stay aside from Bank Nifty. Q: Yesterday there were lot of rumours in the market that many stocks for example Alok Industries which had fallen quite a bit in terms of market cap might find its way out of the Futures and Options (F&O) list. Have you guys done any analysis of stocks because of the recent price erosion might actually not fit the new criteria on the basis of which stock futures selections are being done? A: No, we have not done the analysis but it’s a good cue that you are giving. We did see weakness which was visible both in the F&O and underlying cash market in Alok Textiles or Alok Industries that you pointed out. We would like to carry out the exercise that you just suggested. Q: Would you ask your clients to stay long on IT and FMCG heavy weights, the stocks which have held out Nifty so far? Going into the September series would you continue to be with your longs there? A: Yes, primarily because in a high inflationary macro environment, we have seen the FMCG, both as a defensive as well as the macro environment that we are in, are supportive of longs or higher prices. We have all seen the incredible run of Hindustan Unilever (HUL). We saw the strength in ITC and Asian Paints yesterday. So, those who are already long in these names, we would not recommend them to come out of it. Likewise, as far as IT is concerned, while the sectoral weightage may have gone down a bit on account of how some of the frontliners did, but specific names especially like TCS, if the long positions are open, we would still look at them as leaving them open. Q: Any short trades that you have comfort in going into September? A: There was weakness across the sector. Auto was looking weakish, metals are looking weakish. So, one could pick up few names from some of these sectors.