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Profit booking likely as FII’s long to short ratio in index futures touched around 89%: Mehul Kothari

Considering the breakout on May 28 from this broad range we could expect 1000 points upside from the 15,400 mark. In such a scenario 16400 could be the target for a few months. The support for the index is placed at the 15,000 mark.

May 30, 2021 / 07:56 AM IST
Mehul Kothari, AVP – Technical Research at AnandRathi

Mehul Kothari, AVP – Technical Research at AnandRathi

 
 
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For the very short-term, we expect some profit booking in the markets since the FII’s long to the short ratio in the index futures have surged to around 89 percent, Mehul Kothari, AVP – Technical Research at AnandRathi said in an interview with Moneycontrol’s Kshitij Anand.

Q: Bulls remain in control of D-Street in May unlike ‘sell in May and go away. We hit fresh record highs as we enter the June series. What led to the price action in the week gone by?

A: The week has been quite exhilarating for us since the last couple of months we have seen investors rushing to buy on every dip which took the index finally to a new lifetime high. The momentum remains intact as long as Nifty does not close below the 14,300 mark.

In line with the view that the index Nifty has now reached a new milestone. In terms of triggers, we would say, absence of further negative triggers bolstered the sentiments on the street.

A considerable drop in COVID 19 cases pan India provided the market with much-needed momentum.

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Q: What is your outlook on markets post record highs?

A: Based on the price pattern we have two formations on the chart of the Nifty spot. Firstly, there is a breakout from the falling channel which has an upside target of around 15,800 to 16,000.

If we consider the consolidation band of Nifty since February 2021 then we can observe that the index oscillated in a range of around 1,200 points (15,400 to 14,200).

Considering the breakout on May 28 from this broad range we could expect 1,000 points upside from the 15,400 mark. In such a scenario 16,400 could be the target for a few months. The support for the index is placed at the 15,000 mark.

Q: Small & Midcaps outperform – will they still lead the rally as Sensex, Nifty enter uncharted territory?

A: In the past few months when the benchmark indices were range-bound, the broader markets were under the limelight. Now, at this juncture, the baton might again get shifted to the heavyweights since only they can propel the markets to the mentioned higher levels.

Q: Sectorally, IT, Realty index was up nearly 4 percent. What is fuelling the rally in IT and Realty stocks? Telecom and Metal have seen some profit-taking in the week gone by down over 1 percent.

A: In the previous week, IT stocks underwent some profit booking, and in the week went by again they outperformed.

Basically, they have been in a strong uptrend. However, if we talk about the Nifty Realty pack, then this move was in line with our expectations.

There was a golden crossover in the weekly scale of the Nifty Realty index. Thus stocks like DLF and Godrej Properties which contribute almost 50 percent to the Realty index pulled it up single-handed.

Another counter which did exceptionally well from this pack was Indiabulls Real Estate which surged more than 10 percent during the week.

Q: What should be the strategy – should one book profits as indices touch record highs or hold for more gains?

A: It depends on the time frame of the participants. For the very short-term, we expect some profit booking in the markets since the FII’s long to the short ratio in the index futures has surged to around 89 percent.

This has been the max which we observed in the last few years. Thus short-term traders need to be extremely vigilant.

However, medium-term players can still hold their bets as we expect the higher levels which we mentioned above but gradually.

Q: Taking cues from May expiry – how do you see June series panning out. What are the levels you foresee for Nifty?

A: For the June series we expect volatility to be back as on one hand we are witnessing a sign of caution while on the other hand, the larger trend is very strong and intact.

It would be a tug of war wherein both the bulls and bears would have their share. On the front of the level, 15,000 is a key support for the index while on the higher side 15,600 - 15,800 would be an intermediate resistance.

In the best case scenario, we expect the markets to go beyond 16,000 mark.

Q: What should investors do with stocks hitting fresh ALL Time/52-week highs. Will these remain to be a strong trading play in June as well?

A: For the stocks which are making recent highs they can be held for a couple of months or so until we see the highest possible target on NIFTY and that is 16,400.

With regards to the overall trend for June 2021, we would reiterate as above that we could see markets moving both sides with bulls having an upper hand. One has to be extremely stock-specific in order to play such kinds of moves.

Q: Your three-five stocks for investors for June series?

A: Here is a list of top trading ideas for the June series:

Canara Bank: Buy | LTP: Rs 161 | Stop Loss: Rs 148 | Target: Rs 184 | Upside: 14 percent

During the past few weeks; PSU Bank stocks have remained upbeat and Canara Bank too participated in the rally. However, after that, the stock underwent some consolidation and finally, it managed to break out from the band.

On the weekly scale, Canara Bank has come out of the Ichimoku cloud which indicates strength. We expect faster momentum in the stock in the coming week.

Hence, traders are advised to buy the stock near 160 with a stop loss of 148 for the upside potential target of 184 in the next two-four weeks.

Ceat: Buy | LTP: Rs 1,318 | Stop Loss: Rs 1,270 | Target: Rs 1,410 | Upside: 7 percent

From February 2021, CEAT has been under a corrective mode and it has fallen down to sub Rs 1,300 levels from the top of Rs 1,760.

At this juncture, it is consolidating above the placement of 200-Days EMA. This indicates a halt in the fall. On the weekly scale, it is turning from the Ichimoku cloud support.

This provides an excellent risk-reward ratio from traders. Thus, traders are advised to buy the stock in the range of Rs 1,320-1310 with a stop loss of Rs 1,270 for the upside potential target of Rs 1,410 in the next two-four weeks.

M&M Financial Services: Buy | LTP: Rs 160 | Stop Loss: Rs 150 | Target: Rs 180 | Upside: 12 percent

Similar to CEAT, even the stock of M&M Finance has been under a corrective mode since February 2021 but it has fallen much from the top of around 220 levels towards the recent low of 150.

At this juncture, it is consolidating near the placement of 200-Day SMA. On the weekly scale, it is turning from the Ichimoku cloud support.

This provides an excellent risk-reward ratio from traders. Thus, traders are advised to buy the stock at 160 with a stop loss of 150 for the upside potential target of 180 in the next two-four weeks.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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