Mkts in risk-off mode; Nifty to hold 7500: PhillipCapital

Latha: Actually the risk-off in the market has been quite savage. What is your own sense? Does 7,540 hold? Today, in the last 10 minutes, probably when you were walking into the office, we turned back from 7,560. The recent low has been 7,540. What is the sense? On this contract, will that hold at least?

A: I think it is very critical. I cannot visualise right now as to what would happen by the end of the expiry, because it is a very key period for everybody. At the moment, this morning, I am still holding the view that 7,500-7,530 should hold as a support and there is of course, risk-off approach to all markets right now. I think this particular week will encapsulate a lot of volatility around the globe, but at the same time, I have been listening to a lot of people around the world. They still look at 2016 to be the year for equities. So, we will wait and watch.

Sonia: That is the hope and hope springs eternal. You spoke about 7,530 as a good support for the market for the Nifty. What about the Bank Nifty? It has now crunched all the way down to 16,300. What do you see as the support there?

A: The support for Bank Nifty is in the region of about 15,500-15,800. The two have to coincide. If Nifty were to find support at 7,530, although today’s support is not comprising any of the banking stocks providing that support, lending that support, but it is critical that if Nifty were to find a support at 7,530 and if it were to march strongly ahead, then a bottom of Bank Nifty will also be in place.

Latha: We will have seen some seminal weakness surprisingly in the private sector banks. I mean, public sector banks have been weak for a goodish bit, but lately, ICICI Bank, Axis Bank and Yes Bank have joined the gang. Do you see further weakness in those stocks, simply because they resisted earlier?

A: If I were to take a look which is 12 months hence, rather than this particular week or even this particular month, my sense would be that banking stocks and in particular some well-managed private sector banks, should find support from the present price levels that we are seeing right now. On the back of the general recovery in the corporate sector that I am hoping to see by March or June, 2016, on the back of that rationale, I think that one year hence, these stocks should look okay.

Sonia: So, what should the strategy be for the rest of the December series given the way the first half has panned out?

A: One, those who are long-portfolios and still have not lost conviction, which is sensible at this point in time, they should buy Puts if they are really worried about the downsides, which is what we have seen as an approach by a lot of foreign institutional investor (FII) clients. They have bought Puts at 7,400 and even 7,500. So, those who think that they are here for a portfolio approach, then they should look at buying Puts at 7,400 or even 7,200.

Those who are traders, they should look at selling the Calls which is at this point in time, a market which is not looking to move ahead in a run-away fashion. So, you could sell Calls at 8,000 Strike for Nifty, for example. FIIs, for example, have sold Calls of 7,900 and even 8,000 Strikes to the extent of about USD 650 million in the last week or 10 days. So, that could be an approach.

Latha: Where are you recommending buying Puts?

A: 7,400.

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Latha: I wanted to ask you about Tata Consultancy Services (TCS) in particular. That stock had some negative news coming on Friday. But that apart, it was showing some recovery. Is there more weakness to come in TCS, in particular?

A: I do not think so. My sense would be that TCS should look okay. I think there was a news flow related kneejerk movement that we saw in its price and I think going forward, if US as a marketplace will continue to show robust growth which would obviously result in consequent IT spending and greater client order flows for TCS, then TCS should actually be in a better place than anybody else in the largecap IT space.

Sonia: In fact, you like some of these midcap IT counters, the likes of Mindtree, Persistent Systems, Firstsource Solutions. Is there any kind of trade that one can initiate there?

A: Yes, all of them are buys for us.

Sonia: So, despite, if you have missed out on the trade so far, you can still take fresh buys there?

A: I think the present weakness in the market which is an overhang for across all sectors could present an opportunity for some of these names.

Latha: How is the contract likely to end? Some goal posts, because this is a tricky contract. We have the Federal Open Market Committee (FOMC) meeting to digest, and then there will always be the year-end pressures, any thoughts?

A: 7,500 should not break, because we looked at the quarterly chart of the Nifty on the log scale and on the log scale, for Nifty quarterly charts, 7,500 is looking like a very important support. We believe that the pattern is indicating a consolidation, a sideways consolidation on the back of which there could be bounce back from this particular support. But if it were not to come through, then it just opens up a 200 point kind of downside for the Nifty.

Latha: If I could just extend for January. When you say it supports, so, do you think that that 7,500 supports for a bit more for instance in January as well?

A: If 7,500 holds in December, then, the Nifty should not trade anywhere near that. Nifty should trade actually 200-300 points above that by January.

Latha: Where will the supports come for the Nifty? Which sector because quite clearly, it is not banks which seems to be supporting too much. So, who will support the Nifty?

A: It is widespread. In the sense that it is several stocks and of course, it is not a comprehensive sectoral approach that one could talk about barring cement that showed some news based strength on Friday, but you must have seen some strength and interest and open interest building up in names like UltraTech Cement and Ambuja Cement. Reliance Industries could present that particular support which could result in some strength in the Nifty. Fast-moving consumer goods (FMCG) could show some support. Hindustan Unilever (HUL) is looking alright. Sun Pharmaceutical Industries may not show any further weakness so, that could again come in as a largecap support.

Latha: There are a couple of midcaps that I wanted to ask you. The set of auto ancillaries on which everyone was betting on, the Motherson Sumi Systems of the world, the Bharat Forge; do you have any views over there? And the other set, the Voltas, Crompton Greaves?

A: Voltas, Crompton is a different play altogether. There is a play in which you need to really extend your heart out in terms of conviction for economic recovery by the second half of next calendar year, for example. So, there is some pending, shall I say, if not weakness then definitely lacklustre performance for the next two quarters.

As far as auto ancillaries is concerned, if goods and services tax (GST) were to come through, we are all keeping our fingers very much crossed. If it were to come through, it will definitely lend support to automotive sector in general and some of these good auto ancillary companies should find support. I would bet on names like Mahindra CIE Automotive, those will be the names that I will look at more closely.

Latha: We have asked you many. Is there something that you have missed out? Do you see pockets of outperformance in this market?

A: Again, it is not sectoral at all. It is something that is visible only selectively in midcap names. So, Texmaco Rail and Engineering was looking alright, Hikal was looking alright, Havells India was looking alright. So there are some pockets of strength that are visible and perhaps, investors could look at the portfolios of some well-performing mutual funds in the smallcap and midcap space.