Nifty may breach higher than 9000 in Feb series: Bhamre

He, however, is bearish on metal space and believes it will continue to underperform. Bhamre also recommends staying away from defensives like pharmaceuticals for now.Below is verbatim transcript of the interview:

Q: What would be the last half an hour strategy on the index? It has not moved much up until now.

A: The last two-three hours strategy would have been buying 8,850 Call option. We are sensing still that market may close in positive around 8,920-8,930 odd levels and we were suggesting to buy 8,850 Call option on dips when spot levels were around 8,870 odd levels, around Rs 30 – that would have been a strategy but if you get the dip then only buy it, do not buy now.

What we have observed in today’s session that people have played safe, they have sold 8,800 Put option and 8,900 Call option and pocket in around Rs 7-8-10 and have not taken bigger calls of 8900 Call Put or 8850 Call Put, so people are playing safe in this expiry and that is the reason volatility is not there. But still I feel that the way foreign institutional investors (FIIs) have formed long positions barring yesterday, it would be in their interest that market close higher in this series, so they may try to pull the market up.

However, from the components point of view because there is negative news surrounding public sector undertaking (PSU) banks, so other laggards in heavyweight of index like IT, Larsen and Toubro (L&T) not being laggard but that stock may contribute towards last minute upward move including ITC.

Q: It is been a spectacular January series, is 9,000 a breeze for February?

A: We are not very far away if we close at 8,920-8,930, we are then talking about less than 1 percent move and so, there should be no doubt whether it would come or not.

We go substantially above that level in February. Right now what we are studying from the statistic, the answer is yes. Now lots of people are worried that the open interest in index futures have swelled up a lot and in fact it is. It is at one and a half year high.

If you see on face of it prices have gone up, open position have gone up so people will say there are too many long positions in system and there is good rollover also. So, there is chance of long unwinding.

I completely disagree with that opinion reason being you had FII’s forming long position; you have High Networth Individual (HNI) retail forming short position. That is the reason despite market going up, open interest going up which is clearly formation of long position on face of it still your implied volatility (IV) is quite high.

Today, if you sell Put option of 8,500-8,600 of next series your implied volatility is 21-22 that is think of past. Last one, one and a half year we have not see such high IVs.

This clearly suggest that people are still stuck in their short position, they are rolling their short position and selling some Put option and buying some Put option to hedge it.

So, this momentum may continue FIIs are also rolling over their positions. So I feel 9,000 would be quite a small task we should think about much higher levels.

Again here at 8,500 we have changed our view were no more short but we have missed out on this rally in Nifty front but we are going long in stocks and playing in this rally that should be the disclosure.

Q: What will then help move this market further higher if 9,000 is just a breeze and we should be aiming for higher levels? Will it be financials yet again given their weightage on the Nifty or would you be looking at other areas as well?

A: It is no-brainer that financials have to contribute if Nifty has to go up, so that should not be discussed much but what I feel is that despite crude oil now stabilising or slightly negative bias, Reliance Industries is showing promising sign that this stock may continue to rally from current levels.

We have seen that how FMCG balancing act has been going on. When Hindustan Unilever (HUL) was going up, ITC was coming down and visa versa and n. Now HUL correction from higher levels and ITC is moving up. I stick to my viewpoint that the negative news which people perceiving it to be negative that the band of loose cigarettes; I think it is not negative.

The cigarette consumption would increase if the packet selling is made mandatory and ITC can contribute significantly to this rally. L&T after small correction probably can show a good bounce.

It would be more of index rather than stocks because people are stuck in index. Bank Nifty or Nifty, there are lot of guys who are stuck there and they are rolling over their positions and that is where we would do our active trading rather than getting into stocks from hereon. Till hereon we have been long stocks but we missed out on Nifty but as and when we feel that this is the point to go long in Nifty, we would.

Q: One pocket that has been hit the hardest this series is the metal space Hindalco, Sesa Sterlite and Tata Steel all down about 5-10 percent after the underperformance last year. Do you think this sector will continue to stay low?

A: They would continue to underperform even if first part of February would be slightly better or till the time FIIs are carrying on to their long position. They would underperform because stronger dollar is not doing any good to that sector.

From the derivatives data perspective be it Tata Steel we are seeing Rs 400-405 levels there is shorting happening. Hindalco where we are active these two stocks we generally track very closely.

Hindalco is a good buy or is in accumulation zone between Rs 135-140 odd levels. So, probably it may not correct significantly from current levels but may not go up either. So, around Rs 138-140 you buy and you sell 150 Call option for February Series.

February Series is smaller series in terms of duration and IVs are high at this point of time so time value decay would be faster. So, Tata Steel I would sell on rise and Hindalco I would play covered call._PAGEBREAK_Q: Your view on what one should be doing in the February series with the midcap index. There has been a degree of outperformance in the last couple of weeks, any index or stock specific strategies that you would recommend in the midcaps?

A: Stock specific yes, because there are some stocks which are doing good, in fact on Tuesday we were mentioning to buy Indian Oil Corporation (IOC).

Our technical guy was suggesting buying Hindustan Petroleum Corporation (HPCL), both are doing well. Tata Chemicals and UPL are other stocks which they have recommended to go long on, they are doing well.

I sense that midcap as well a whole may not go up but selected stocks would go because those people how are still short and rolling over their short position, will try to cover up their losses by going in some high beta midcap stocks which they feel would do wonders for them and may get stuck there again.

Therefore, I won’t touch midcaps barring few names which I took and as and when we get some good ideas from very short-term perspective, from three-four days perspective. Otherwise if someone asks me – will I be more overweight midcaps in next 200-300 points in Nifty. My answer to that would be no. My main preference would be index and then largecaps. I may not touch midcaps barring few stocks here and there.

Q: Do you want to give us any volume weighted average price (VWAP) strategy for the last half an hour or it doesn’t make sense for that?

A: I don’t follow it. I feel, in VWAP people take the entire month average, but people tend to square off their positions in between and I don’t believe in that VWAP fundamentals but what my statistics were saying that Nifty will probably show you a pullback towards 8,920-8,930 and that is where we could have expected expiry and we are there I guess.

Q: Give us a word on how some of the fast moving consumer goods (FMCG) stocks have done in January and whether you expect this strength to continue. So Hindustan Unilver Ltd (HUL), Asian Paints - are these stocks that you would continue to bet on moving substantially higher from hereon?

A: No, I am not comfortable. We have missed out on these rallies, which have come in HUL and Asian Paints. We have done some trading but we have eaten the entire move. It may sound biased but I am not expecting significant rallies from current levels. These rallies happened when markets were quite turbulent.

People were running for safety and finding stocks where input costs would reduce and that is where fund flows were moving from a safety perspective. Now when you are seeing that FII flows are fine, we are talking so big in terms of macroeconomy how the push would happen, I don’t think the fresh fund allocation would go to these names. In fact, it is quite possible some of the funds would move out of these names because they have done well and got into high beta space. So I am not very optimistic on these names from current levels and if I want to do something over here then I am buyer in ITC at dips.

Q: What do you mean by high beta space? If you look at the sectoral index performance for the month, realty, consumer durables, capital goods, these are all sectors that have done very well, high beta would mean realty for you, high beta would mean infrastructure or capital goods for you, what would you pick?

A: I am picking only largecaps that is first thing and when I say high beta, I am predominantly talking about banking and predominantly talking about oil and gas space.

Q: You just said there is no point talking about financials, it is a no-brainer so I suspect that that bit of the strategy is not much of a strategy?

A: Yes, so I was coming to the other names like DLF. That is one stock which we like. That stock has shown a breakout, most of the people have given up on their positions around Rs 140-150 levels, people have written call options those calls would get exercised and they may have to leave their delivery and the stock may show further upside momentum.

ITC I mentioned whether it is high beta or not that is debatable.

Reliance Communications (RCOM) is one stock, which we are liking though the negative news pertaining to spectrum pricing, I don’t think RCOM has much to lose over there. Bharti and Idea are much bigger losers.

I spoke about other stocks like oil marketing companies (OMCs), now this disinvestment thing is running on, people feel that stock would be under pressure but I feel stocks which are candidates but the disinvestment is not yet announced like Oil and Natural Gas Corporation (ONGC), NMDC these stocks may show you good run up. Just like in Coal India if you see, fortnight back this stock was trading around Rs 350.

Now the stock went up and now you are seeing it will give 5 percent discount. So same stuff can happen in stocks like ONGC and NMDC in next couple of months that these stocks can move up 15-20 percent because you want to come out with disinvestment strategy and then you will announce that we are giving you 5-10 percent discount. It makes a lot of sense to buy these stocks now and when they give you 10-12 percent upside move, move out.

So these are few names apart from index where we would be trading with positive bias. Now this is predominantly on back of what FIIs are doing and right now they are positive. Tomorrow if they change their view and they start unwinding their position, I will change my view.Q: Some good numbers have come in pharma space and technically, the stocks are looking strong, anything from this space that you would buy with a positional view, a medium-term view in the market now?

A: I would be a bit skeptical to put some money in defensive space. So pharma may not be a preferred pick but from a medium-term perspective, I might just play safe and throw my house call that we are bullish on Dr Reddy’s and Indian Pest Control Association (IPCA) from a medium to long-term prospect.

Q: Within the financial space, in this no brainer strategy, what stocks appeal to you the most in February? Will it always be a largecap private sector bank play for you?

A: When we say no brainer it does not mean that you do not require any brain to make money in financials. The weightage is so high in overall index that markets cannot go up if banking is not going.

We have seen how PSU banks have corrected but I believe not all banks would reporte numbers like Oriental Bank of Commerce (OBC). So there is some sort of over reaction at this point in time. We would be buying Bank of India (BOI) around Rs 270-275. If we get State Bank of India (SBI) around Rs 310-315 that would be a trading buy again.

Private sector space again because of the weightage it should be in favour that Axis Bank is doing well. If that momentum continues, I won’t create fresh long position but the momentum may continue. I am a bit worried on ICICI Bank, the stock has technically shown some weakness and if this weakness persists and I want to balance out my portfolio within banking, ICICI Bank would be sell on rise for me.

Q: What would be your preferred strategy for the Nifty and the Bank Nifty as we are going to this next series in the early part of this next series?

A: First week or first few days this momentum is going to continue. Again I am saying we have missed out on this rally from index front but stocks we will be playing positive. My strategy would be forming bull call spread because implied volatilities (IVs) are high, IVs will decline. People are feeling that in February series because of Budget the series is going to be volatile but mind you most of the actions these days are happening outside Budget.

Budget is technically in March series it is not in February series because it is on 28th and February series finishes on 26th. So Call and Put IVs are very high I would try to do some rang bound trading also in February series where probably I will short 8,800-8,700 Put and 9,200-9,300 Call option and eat the premiums.

Q: What about Bank Nifty?

A: Bank Nifty may not outperform Nifty so again there would be like 1,000 points on the upside and the downside. This might be the strategy but then first we are going on the higher side of the range.