7800-8000 bottom to throw sharp relief rallies: Phillip Cap

The big global carnage has definitely indicating a trend change but 7900-8000 should hold on the Nifty, says Vineet Bhatnagar, MD at Phillip Capital on CNBC-TV18. He predicts sharp relief rallies if a bottom is formed around 7800-8000 levels. However, when a rebound happens, India will be at the forefront, Bhatnagar said while conforming to the most sought-after strategy of staying with IT and pharma stocks to tide over the volatile times. Below is the transcript of Vineet Bhatnagar’s interview with Sonia Shenoy, Anuj Singhal and Reema Tendulkar on CNBC-TV18. Sonia: It has been a scary day to wake up to but just looking at this objectively do you get a sense that we are still in a trading range or has the trend now moved decisively downwards? A: From what we have seen on Friday and this morning, it looks that there is definitely a change in the trend and more so because there are no supporting news or supports that are coming even regionally or internationally. This morning the fact that it has moved down quite sharply does give me a sense that there is a change in trend. However, we must also remember that if there is a change in trend, there will also be very sharp relief rallies that may come about and therefore even though this may not be the bottom, it is very difficult at this stage to even decide to go short for example. Reema: When you say change in trend you would recommend selling on every bounce that we see so don’t get fooled by any of these relief rallies? A: Yes that is what our sense is and more so because we were looking at the monthly and the quarterly charts. On the monthly and quarterly charts there is a weakness. For example, all the major indices, Nikkei, Dow Jones are sitting on very strong supports at this point in time. Nifty for example, for our quarterly chart is at 8,000 which is a strong support. If we end this particular month below 8,000 then there is continued weakness. Sonia: What do you think the base for the market has moved down to? From now until the end of the year what do you think the range for the market could be?

A: I think it is difficult to estimate as to where it will be at the end of the year. However, what I could perhaps sense out of the way the build-up is in the futures and options market, it looks that 7,900 is where the focus of the foreign institutional investors (FIIs) is as far as the Put protection is concerned. They have built positions between 7,900 to 8,100 to the extent of about USD 4 billion so that should hold for the moment. We are already in the expiry week, so we will get a greater sense by Wednesday or Thursday.

Reema: Did you take a look at what is happening in the currency market as well, two year low for the rupee as we speak? What is your sense?

A: I think that indeed is the center play of this entire slide that we have seen in the equities market. It was precipitated by the currency market in the emerging markets starting with the China’s devaluation. So, it is not surprising that rupee is under pressure. On a relative basis, it is a bit better than some of the other emerging markets. However, the currency wars and the equity slide off also affect how the import and export markets shape up in terms of our competitiveness. So, that also will be decisive as and when this takes some stable ground. Sonia: If the trend for this market has changed then for the next series for the September series what could be the most prudent strategy to initiate? A: What will happen is actually a bit of a challenge because in the next one or two days what we will see is the following. The local professionals and the high net worth individuals (HNIs) and the proprietary trading desk (prop desk) in the local market are perhaps sitting on the long positions or those who are sitting on the long positions will come out in a hurry to get out of their long positions because of the large mark to market that will happen this morning and perhaps the even from Friday close. On the other side the foreign institutional investors (FIIs) who have been sitting on a cash future arbitrage book will find it difficult to roll when they come to roll on Wednesday and Thursday. That is going to be the challenge for the short rollers. Therefore whether the market will give an opportunity for them to start building new positions in the fresh hour book remains to be seen. Whether they will be able to successfully roll will also become clear by Tuesday and Wednesday, as hopefully the dust settles.Reema: What is the chart of Bank Nifty telling you, what has been the kind of build up in futures and options (F&O) space? Do you see it headed significantly lower from here on? A: Banks have also been, especially the PSU bank have been a bit of a high beta play over the last several months. Therefore the fact that they have been all been cutting their gains that they achieved a week or ten days ago is all coming to a naught. PSU banks were under pressure even on Friday and this morning so that will indeed be under pressure even going forward._PAGEBREAK_ Reema: Earlier you were telling us how the property people or the high networth individuals (HNIs) have long positions, so they will have to unwind. The Foreign institutional investors (FIIs) have cash futures arbitrage which basically means that when you have to unwind that you are going to be selling cash and buying futures. So net-net cash is going to be sold both by the HNIs and FIIs, so then what gives you the conviction about that 7900 or 8000 level being held as a support? A: The bigger reason is that even though the market has changed its trend and of course we are looking at levels far below 8200 which is what the earlier support was propounded to be last week and this morning it is 8000 as we are looking at it, the reason why 7900 will hold is because there is this panic that has set in as you will see even in the India Vix which has shot up very dramatically this morning to 24, so whenever there is a fear, there is a panic, the market does create a bottom and from that bottom it could actually rally 200-300 points on the Nifty quite easily. So, it is important to note that going short at the bottom 8000-7900 might be a very instinctive trade to take, could actually turn out to be a double whammy. Anuj: Sometimes what happens is that in expiries especially it is momentum that talks and a lot of retail prop and HNIs have been stuck with long positions as the data is indicating. Do you think the further cascading impact can take the Nifty towards 7,700, even 7,600 purely by expiry? We have seen something like play out in the past as well. A: It is indeed possible. Of course it is the equilibrium that will come about in terms of the forces of the professionals and the institutional clients. It is possible so 7,900 is a number that we are looking at only because we think that everything is looking oversold, there is a panic and therefore in the next two-three days we should be seeing a bottom which could be at 7,900 but it is possible as you were pointing out that it is 7,700 instead of 7,900.  Sonia: What do you do with some of these outperforming spaces like IT and pharmaceuticals? Investors or even traders have made money in the last fortnight on these names, how do you approach these large caps? A: The classical defensive play that these two sectors offer are clearly the safe havens if you will as far as the traders are concerned more so because of the exaggerated currency weakness that we are seeing, the competitiveness, the national advantage of India in the IT space and pharmaceuticals space will of course standout and therefore those who are sitting or have long positions in the IT and pharmaceuticals space in the cash portfolio should just sit tight, those who are taking tactical positions, they could look at trades in the largecap IT space anyhow.

Reema: After this 8,000 level what is your sense, is 7,600 more likely or 8,500 more likely? Give us a medium term perspective on the trend of the market.