Nifty to nudge downward; like IT: CK Narayan

CK Narayan, MD, Growth Avenues expects a soft start for the Nifty but not a large decline. On back of the news that has emerged from Delhi, Nifty could nudge downwards, he adds. However, he does not think too much positions have really built up for the Delhi elections or for any other sets of events.The market according to him seems to be doing what it did in December where in it fell for straight seven-eight sessions. Only this time the fall is not as sharp and seems to be led by the banks. However, there has been a clear shift into the IT pack and that index has hit new highs. So, with the IT index now showing a clear divergence, he is upbeat on the space and thinks Infosys seems to be taking charge now. He also likes Hexaware and Tech Mahindra from the midcap space. However, he would be a wary of the banks for the present and would wait for them to form a bottom, come out of it and then buy.

The Bank Nifty according to him will meet with good supports around 18725-18750 zone which is not too much of a downside from where it closed on Friday.

Below is the transcript of CK Narayan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is the sense you are getting of the markets today, is it a deep cut going by the fundamental news in the ambience in which the markets start trading today? A: I think the market has clearly shown its hand in the previous week as it were. We seem to be having a repeat of what we saw in the month of December only with lesser venom. If you recall December we had about 7-8 straight sessions down. Even in this month we are seeing now the last six sessions in the Nifty and the last seven sessions in the Bank Nifty have all had successive lower lows. The only difference being that this time the fall has been led by the banks and in its vague the Nifty has fallen.However, alongside there has been clear shift into the IT pack because the last seven sessions have also seen the IT index hitting new highs. So, clearly the market is undergoing a shift in preference. We may have a little further nudge to the downside from the news that has emerged but having gone down for about seven straight sessions, hit down somewhere around 8660 on the Nifty Spot, we should be starting somewhere much lower, 8600 perhaps today on the Spot Nifty.The Bank Nifty is said to hit some supports about 100-120 points below where it closed on Friday. The Nifty likewise should probably also hit some supports around 8550 on the Spot and about 8600 on the Futures. So, I don’t expect a substantial caving down after a softer open, I don't think there have been too many built up positions on the short side, if you look at the Options - that also does not betray any kind of significant nervousness. So I don’t believe too much positions have really built up for the Delhi elections or for any other sets of events. So, soft start, yes, but large declines, perhaps not.

Latha: What is that support level, we for a long time clunged to 8700, both 8700 and 8600 seem to come under threat last week, what can you cling to as a decent support level if you are a Nifty trader? A: We think we can take some clues from the Options market. People typically play the upside and the market through Short Puts and if you look at the data as of Friday, you will find an even distribution in the 8500, 8600 and 8700 strike Puts, they are all in the range of about 48 lakh shares. 48 lakhs is not a very large number to create a very strong base but then since it is distributed across three strikes in similar number, I would imagine that the market punters are not betting for any index level which is significantly below 8600. So, somewhere between 8550-8600 on the futures is where I would expect the worst case scenario to be. Sonia: You were talking about the IT space, in fact last week HCL Technologies and Wipro were all up about 6-10 percent a piece. What stocks would you take position on this week? A: If you look at it from the perspective that the sector index has been charging upward and showing a completely divergent trend from the overall market which is typically ruled by Nifty and Bank Nifty, it is very clear that there is a shift of focus to all the stocks, all layer of stocks within the IT space. HCL Tech surprised the street with the results; Tech Mahindra has been doing likewise, Infosys as a leader is now kind of taking hold because in spite of good results from Cognizant, Tata Consultancy Services (TCS) did not make the charge. So, Infosys has grabbed that mantle and I would concentrate on Infosys as one of the stocks to go up. I think the bullishness that is visible in the sector index may spillover into the midcap stocks in the space itself. So, IT is a space I would hunt and I would keep my focus on Infosys, Hexaware and Tech Mahindra.Latha: What are the levels you will watch in the Bank Nifty and is there anything you will play in the short side? A: The banks are certainly meeting with selling and this is true for most of the public sector banks. In particular, in private sector we saw clear selling emerge in ICICI Bank post the results. However, the other private sector banks like Yes Bank, Axis Bank and IndusInd Bank have not seen any kind of selling emerge, may be some light profit taking that is it. So, Bank Nifty I feel will meet with good supports around 18725-18750 zone which is not too much on a downside from where we closed on Friday. So, I would perhaps expect that if that were to come down and the Nifty finds its feet then perhaps across the rest of the week it could even be the banks which could be on a recovery mode and the banks could power the Nifty up a bit during a recovery phase. Now, I don’t believe we are going to get into a significant recovery space like we did back in the end of December; that is because there are too many imponderables which are there in the air at the moment. We have got macro data coming out, we have got the Delhi election results coming out tomorrow, we have the Budget ahead of us that is more of hope and sentiment so what we will do is even if we do hit a bottom in Bank Nifty or Nifty, we are going to have a mildish kind of rally and the market is going to spend more time in consolidation rather than in robust advances.Sonia: There are two stocks, the biggest banks State Bank of India (SBI) and ICICI Bank that have fallen 6-10 percent in the week gone by. Would you use this as an opportunity to trade into any of the banking stocks on the long side and if yes which ones would they be? A: I am not going to step in there in front of a downward speeding train. Particularly in terms of ICICI Bank there seems to be clearly some exit going on from some large holder and you never know what kind of inventory they are actually dumping. SBI has been falling alongside the rest of the PSU banks. The results are still awaited. I think the market would want to watch the results of SBI and if that were to be along the lines of what we saw for Punjab National Bank (PNB), Bank of Baroda (BoB), etc that would sound a bit of a death knell for the banking sector for the shorter term.However, having said that about the shorter term, the larger term seems to be as yet undisturbed in most of the stocks and sectors as well as the index. So, this is clearly something that is of localised nature as a response to some localised events for the moment. So, the market will step back and take a longer view, particularly the larger players. We always speak about wanting to buy on decline so here is a market giving you an opportunity to buy on decline. Now, the opportune thing there would be to wait for the decline to complete or signs of that to emerge and then subsequently venture forth rather than try to time it down to the exact lows. So, I would say wait for ICICI Bank or SBI or whichever banking stock you are interested in let it form a bottom, let it form a base, come out of that and then we can buy. If it is going to continue higher then there should be a lot of room so no worries on not catching the bottom.