Buy puts if sharp rally seen post RBI policy: Sukhani

The Reserve Bank of India is all set to announce the much-awaited monetary policy today and most market watchers are expecting the central bank to cut rates.

Sudarshan Sukhani of S2analytics told CNBC-TV18 that any sharp rally after 11 a.m should be taken as an opportunity to buy puts. “If the Nifty were to crack down below 5,200 at that point a full position will be taken,” he added. Below is the edited transcript of the interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: To start with the Nifty; we may start a bit soft again around that 5200 level. At what point do you start initiating trades again after the event plays itself out?
A: Breaking my own rules, I took a very small short position in the afternoon yesterday. I did explain that my view is that we are going down irrespective of the volatility and after 11 am today any sharp rally is an opportunity to go and buy Puts. If the Nifty were to crack down then below 5200 and that’s the point at which a full position will be taken. At this point I am not looking to go long or such for any opportunity to buy. So the view is very clear as far as I am concerned.
Something can happen in the policy, we have been talking about it for one month now so at least we have to wait for it. Something can happen that will change this view that I can't say but as of now I am quite sure which direction I want to take a trade in. Q: Canara Bank is a long for you today?
A: Canara Bank is a long today; it’s actually long irrespective of what the RBI does. So unless there is a catastrophe because with regards to news events we have to be careful but the charts are very attractive, it suggests that a very decent base around the Rs 430-470 level has been build and it’s willing to now cross and breakout. So at least 50-70 points that would be a 15% rally is quite possible in Canara Bank but positions should be taken only after RBI announcement. Q: What about something like Mphasis?
A: Mphasis is a short. It is not only because it is in the IT sector but independently Mphasis saw a very sharp rally and that rally has now come to an end. At best we will see a decent correction which means lower levels are likely and if it follows the other IT majors then it could go back to its original lows of Rs 250-270. So, in either case Mphasis remains a short sell. It started its selling spree yesterday. It broke below support level, made 50 day lows and now every opportunity should be used to build up a short position. Q: Haven’t seen Ballarpur Industries in your list but you have got a bullish take there?
A: In Ballarpur there was a rally, it went all the way to Rs 40 then it slide and was almost forgotten. But it has a very attractive chart, it is trading in top of its range, in the sense that the range is wide from Rs 17-24 and is moving around Rs 24 band for quite some weeks now, not just days. It is on the small correction which tells us that perhaps this is a buy on dips opportunity. Now we are anticipating that sooner or later that Rs 24-25 band will be broken on the upside simply because it is on the upper end. It is a good buy because if this rally is going to begin then the small correction has probably come to an end yesterday or today, it made some very narrow range bars.
Now there is no F&O, so you just go and buy the equity, which carries less risk because there is no leverage. So it makes a lot of sense to go and buy it, wait patiently. It could reward in two days or in 20 days. Q: Mahindra and Mahindra (M&M) had a sluggish day yesterday, losing a percentage point; you think it’s headed for much lower levels?
A: Yes it’s headed for much lower levels. The rally we saw in M&M now appears to have been a bearish flag which comes midway between a decline. So if this is midway, then we are looking at somewhere around Rs 500. I don’t know if that’s a good suggestion to make but the charts are not good at all. Yesterday it broke down amd the chances are it will see some follow through. Rate sensitives in any case can have volatile times today. So even if you are a day trader, selling M&M and then buying it on any of these volatility bouts could make money. Q: How about Alstom Projects which is on your buy list as well?
A: It is a good chart. It has gone through a very large correction, some kind of a bear market and that is probably over. Now, at Rs 340-350 it has a very strong base. A correction reached that level and has now begun a bounce on the upside, so it closed better yesterday and chances are that that is the beginning what is likely to be a new up move. Now, where the up move ends we don’t know. It could still remain in a trading range. But for a short-term trader because it is in the F&O, because you can buy equities there is a trade on the long side. There is some money to be made hopefully on the upside. Exactly how much we’ll have to let the markets say. Q: What is your view on GMDC (Gujarat Mineral Development Corporation)?
A: It is a short sell. If not anything GMDC is likely to come down to that Rs 160-165 level where there is some support and whenever it comes there and if it breaks that then it goes into a very big decline. So whether it’s a short-term trade or what can possibly become a positional short trade, in either case GMDC remains a short sell. Yesterday it broke down below a support level. Again a lot of stocks did that yesterday and now the sense is that it’s going to go slowly towards the initial levels of Rs 160.
_PAGEBREAK_ Q: Today we might start flat on the index but any price levels beyond which you will be taking a slightly bigger trading call long or short?
A: If the Nifty were to close, not intraday but if it were to close above 5320 then clearly the bias would shift to a long position because that event itself, a 100 point rally will tell us that markets are willing to go up even more. So that is one level.
Secondly, if the Nifty slips below 5200, anytime after the RBI event is announced, and I don’t have to wait intraday for that then I would take a normal short position. I would not worry about any intraday rallies from then on. So these are the two boundaries; 5200 intraday after the policy and 5320 on a close. Q: What about Union Bank which didn’t close very strong yesterday?
A: Union Bank didn’t close very strong. It does not have very good charts. Apparently the rally in Union Bank is over; it’s been in some kind of a decline and then intermittent corrective rallies. So, Union Bank is actually a sell, which is a surprise given the broadly strong nature of most banks. The best way is not to go and trade in it because I don’t think you should be buying it. Q: What do you think of Hexaware?
A: This stock makes new highs and as we have talked about earlier that any share that makes new highs should be bought into, so Hexaware is a buying opportunity. In the last two days, it has broken out of the resistance level of Rs 120, so at that point it’s now willing to go higher. Even though the stock has been rallying, the breakout tells us that another 15% is quite possible. Hexaware is an exception in the IT pack; it’s a buy and certainly a buy on every dip. Q: Another big star from yesterday was Aurobindo Pharma, your view on that stock?
A: That is difficult to call because yesterday we had a very big stunning move. I don’t know if one would want to buy after such a large move in any stock. So let Aurobindo consolidate, correct and if it stays above that level of Rs 110-120 then it becomes a buy. Purely on the charts, of course you want to buy it but as a matter of tactics today may not be a good day. Q: Telecom has had a bad ride off late, what is the chart of Idea looking like?
A: It’s a little confusing and mixed but because Idea has been outperforming and it is now standing almost close to its support levels of Rs 90, there is a possibility that the support will hold. What is happening is that a lot of stocks are standing at support levels and that’s not unusual because the Nifty itself is at 5200-5180 support. If the Nifty holds, all of these stocks including Idea will rally.
So for today, I would assume that Idea is more of a buying opportunity because support doesn’t break almost immediately. At least for an intraday trader you should be looking to buy with a close stop. Q: Is Dabur a strong chart?
A: It is a better chart than Aurobindo Pharma although they are not really comparable because Dabur never saw a correction like Aurobindo Pharma did. It was simply consolidating at Rs 90-100-105 levels and it’s finally broken out. Dabur is a good chart and the chances are that the rallies we have seen are likely to hold. So all you need is to wait patiently for small dips and go and buy it. Q: A frontline stock Larsen and Toubro, your view on that?
A: L&T is again at the Rs 1250-1275 support. Yesterday it made a very narrow range. That narrow range tells us it is willing to go down, break support or again regain strength but that will depend on what the market does today. Assuming that this support holds, L&T is at least an intraday buy till it doesn’t break that Rs 1250 level. So with a very tight stop it’s possible to trade in L&T today. Disclosure: I have no holding or interest in the stocks discussed.