Bearish on PSU banks; go long on SAIL: ICICI Direct

Amit Gupta of ICICI Direct tells CNc-TV18 that banking heavyweights SBI and Canara Bank are short selling candidates now which indicate the anticipation of a breakout. On the positive side, however, he has a buy call on steel major SAIL.

Gupta expects the May series to be volatile because of the skepticism on the Street.

Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.

Q: The banks have looked a little sluggish over the last couple of days. How would you approach some of these public sector undertaking (PSU) bank names?

A: If you look at this particular series, we started at a very low open interest base. But since we were holding 5,200, everyone was looking at the options build up and 5,200-5,100 put options had a very good base. We also saw that the midcap space, particularly banking, started seeing good additions.

Currently, there is a general view in the market that the May series is going to be highly volatile. In the last decade, we have seen that the month of May has very large moves, so people are very skeptical. Whatever build up was seen in this month, they are not rolling the position to the next month. This is where I think the long liquidation is happening.

Even if you look at the heavyweights in the banking space like State Bank of India, it was not able to hold Rs 2,300 and is now closer to Rs 2,100 or Rs 2,150. So I think the heavyweights were not performing due to which the midcaps are giving up.

 Canara Bank is one of those stocks which I think is looking vulnerable. When the market started giving up from 5,630 to 5,268 levels, we saw that Canara Bank was continuously trading weak below that level. So this is one of the stocks which is weak and I think some shorts have been built up around Rs 473-475, so it is possible it may be dragged towards Rs 458 in the coming sessions. Also, whatever build up came during the month in anticipation of a breakout in this stock is slowly giving up, so that may also lead to the decline.

Q: You have got a trading strategy on Steel Authority of India Ltd (SAIL) before markets open?

A: Yes, I think this is one sector which has not been performing from the last series. A number of shorts are there, but a little bit of comfort in the market around 5,180-5,200 may do some short covering.

SAIL is still a very significant short addition, but it is continuously forming higher bottoms which is why I think we should induce short covering. It has closed above Rs 100 and I think any decline towards Rs 98 is going to be the immediate major support. I think it should be bought.