Angel Broking suggest selling HDFC & ITC

Siddharth Bhamre of Angel Broking is not very optimistic on Nifty regaining 5800 levels easily.

He suggested selling HDFC and ITC. For HDFC, his target is Rs 788 with the stop loss of Rs 845. “From January to February, we have seen short positions getting rolled over and we were not very upbeat on ITC", he said. On ITC, his target price is Rs 298 with the stop loss of Rs 314. Below is the verbatim transcript of his interview to CNBC-TV18 Q: What is it looking like - the strength of this pull back? Do you think we can make it back to 5800 kind of levels? A: We are not that optimistic. We have our reasons for the same. Look at yesterday’s rally, most of these stocks which have been battered down have gone up. Some of them have formed long positions, but most of them have seen short covering. At the same time, what happened on expiry day - that 40 point bounce - that cannot be attributed to the change in trend because whatever happens on expiry day can be softly neglected, pointing out that this might be expiry related adjustment. Otherwise, markets have not significantly rallied. At the same time, if one looks at FIIs, in the beginning of the series they have shorted some amount of index futures and they are buying options and the built up is visible in both - call options as well as put options. In put option, 5600 and in call option we are seeing some built up happening in 5800-5900. One thing which is worrying us is the structure of the market. If one looks at the index futures, open interest, we are starting at seven-eight year low in terms of number of units in Nifty. This clearly suggests that this has been a short term trader’s market who are more interested in options rather than directional traders who provide support to markets in form of short covering or recessions in the form of long unwinding. Over a period of time this market would become more volatile. Some of it is not getting reflected in implied volatility. So, to keep this structure aside, coming back to the view part, if one looks at the euro-dollar movement, yesterday’s bounce in euro was mainly because weakness in manufacturing numbers which came in US. Otherwise, there is no reason for us to consider that euro would bounce significantly against dollar. I think that trend would resume again - that is depreciation of euro and you would see shorting of FIIs in index futures and buying put options. Implied volatility of put has gone down significantly. Keeping all these things in mind, what we had suggested to roll over short positions, which we created around 5900-5950 to carry these position. We are expecting 5600 to happen. Those who have missed out on the rally probably can buy put options now. If there is 40-50 points bounce, which I am not sure of then one can short futures. Q: From those financials, you have got a trading call on HDFC. A: The stock has outperformed in last expiry and had given positive returns, eight-nine percent. However, there is no substantial long position which got added. In fact, the rollover figures are also not that encouraging. It is around 60 percent rollover and four percent reduction in open interest month on month. Yesterday, there was 10 percent built up in stock despite broader markets rallying. This largecap has not seen significant upside move. There is a 10 percent built up with reducing cost of carrying. We believe that these are some kind of short positions created by strong hands. Stock has good resistance around Rs 835-840 zone, somewhere near Rs 828 right now. So, we are suggesting to go short in this counter with stop loss of Rs 845 for target of Rs 788. Q: Do you think the short covering in DLF, JP Associates - those high beta names is done or do you expect more of a push in these names because of more covering? A: More than short covering. Although unlikely,  but I believe if market remains stable, then one would find traders especially intraday traders and traders who are looking for one or two gains, might come forward and form long positions. That would take stocks ahead. In all these days, barring DLF, most of these stocks were falling mainly because of what was happening in cash market and delivery based selling in these counters. So, I am bit skeptical that there would be further short covering which would trigger a rally. However, the other options would be that there might be some traders who would be trying to play on the momentum. These guys might take probably stock one-two percent up from current levels in case of largecaps. In midcaps, four-five percent but for that, market needs to stabilise which is not our view. Q: What is your view because while there has been writing of 5800 and 5900 calls, there has also been some writing of 5600 puts? Do you see that being saved for the April series or that being taken out? A: Generally, people perceive that wherever the built up is happening, it is writing, one needs to correlate this with implied volatility. If implied volatility (IV) is low and one has all the days left for the expiry, I won’t consider this built up as writing. This is buying. The index option data of FIIs shows that yesterday also there had been buyers. They have been buying put options especially in last series. So for me, these are not support and resistance for the market. These are make or break levels or probably trends decider levels for the market. We are betting that 5600 put has been bought. Today, at Rs 35 one is getting 5600 put option and we would suggest that any rise or at current levels should be a buy to put option or 40-50 points from current levels one must go short in futures. So, that data needs to be read in today’s scenario with such low IV’s as buyers of options rather than selling of options. Q: You also have a strategy on ITC? A: Generally, people perceive that if our view is negative then why we are giving sell on ITC, we should be a buyer. It is not a 100 percent correlation. We have seen in past that how in falling market defensive also correct. From January to February, we have seen short positions getting rolled over and we were not very upbeat on ITC. In March month, there were very low rollovers and short rollover, exactly opposite this month. Very less rollovers but it is long who have not rolled over their positions. Stock is near Rs 310.