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9K key resistance for Nifty; like HCL Tech, NBCC: Nomura

The Nifty currently is at critical juncture and is facing resistance at higher levels, is the word coming in from Tushar Mahajan, head of listed futures and options – India at Nomura Financial Advisory. According to him, 9000 may be a key resistance level for the Nifty. He says 8700 is a firm base for the Nifty.

He says towards the end of trade on Wednesday, there was a lot of profit booking by local traders – FII buying was being combated by domestic selling.

According to him, Nifty 8500 put has highest open interest on put side.

Mahajan says the selling in Bank Nifty on Wednesday dragged the market. He feels PSU banks will continue to remain under pressure as raising fresh capital will be an overhang.

He is bullish on IT, pharma and private banks. He expects  HCL Tech to continue to outperform and is bullish on  NBCC from the midcap space.

Below is the verbatim transcript of Tushar Mahajan’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: What happened yesterday that steep fall, yet we saw good foreign institutional investors (FIIs) numbers as you were pointing out. It is little dichotomous, FIIs are buying and yet the traders are giving up positions. Is this contract likely to be that way, likely to end lower?

A: What is happening is technically we are at very crucial levels both on the Nifty and the Sensex. Psychologically, 9,000 on the Nifty and close to 30,000 on the Sensex, that is what is happening so yesterday everyone was obviously over bulled at the open with the surprise rate cut. The opening gaps you saw the Nifty post higher crossed that 9,100 odd levels the Sensex obviously crossed that 30,000 level and everything looked hunky-dory.

After that initial adjustment of positions for a lot of option writers who had outstanding positions at the 9,100-9,200 odd levels what we saw yesterday was a big bout of profit booking by local traders.

FIIs continued to pump money into this market but they are pretty much well met by the local traders who are looking to book profits at these levels. My own sense is that this 9,000 level probably will continue to be a resistance for sometime and unless we see some clear triggers the only one left now for the end of this year apart from year-end adjustments, net asset value (NAV) adjustments is probably the advance tax numbers.

As corporates start going in with the advance tax numbers you should start seeing those numbers come through by March 15. If that is giving a direction with respect to increase in profits in this quarter that is probably the only trigger which can move the markets now beyond the 9,000 level. Otherwise probably this contract will stay put at that level not withstanding the fact that yesterday’s opening high was much higher.

Sonia: If 9,000 remains a resistance level for this contract just give us a range for this markets for say the next two to three months? Has the base for this market moved up much higher?

A: From the data that we kind of keep observing with respect to where positions are being build up and all of that on the downside you see the most amount of concentration around the 8,500 odd levels. My own sense is that 8,700 it is going to be the first support and the range has definitely moved higher so 8,700 and probably a final bottoming out on the downside at 8,500 which we are looking at a big move in the markets globally. We are looking at some unfavourable data coming out in India and all of that so any of those surprises and we probably move to 8,500 over the next 2-3 months.

On the upside like I said 9,000 looks like a very strong resistance and if we cross that we could easily inch higher to about 9,200-9,300 odd levels. That is a fairly large 800 point range that we are talking about but short-term from a trading perspective 8,700-9,000 is what we are going to kind of dangle into over the next week or 10 days or so.

Latha: How should you trade the Bank Nifty in this quarter, in this contract?

A: That was the other big surprise yesterday. The Bank Nifty between the highs and lows losing about 1,000 points – that kind of took a lot of the wind off the sales. The banks to my mind, we are seeing this big divergent between public sector and private sector banks and that might just continue to play out.

So likes of Axis Bank , HDFC Bank ,  ICICI Bank probably will keep the Bank Nifty higher and from an Index perspective they are amongst the highest weightage stocks on the Index as well. So Bank Nifty while it should provide leadership but more because of private sector weights in the index, the public sectors will continue to face some pains. We also have a slew of fund raising lined up over the next 2 or 3 months from the public sector banks and that also could have its own impact on the Bank Nifty.

Sonia: Depsite the market seeing so much volatility the good part or the interesting part is that there is so much buying interest in individual stocks. As we speak as well the likes of Cipla ,  Sun Pharma and  United Spirits are all moving higher. For the rest of this series what would top your buy list now?

A: We were thinking that if the markets have to inch higher or sustain higher above the 9,000 levels where is the leadership going to come from? Banks driven by the private sector banks are probably one sector of clear consensus that should provide that leadership.

The others are going to come back from the erstwhile favourite sectors, IT and pharma. In pharma Sun Pharma, Cipla and Lupin those could continue to keep moving. IT with the move now beginning to happen in the INR again could be a good beneficiary as well. When you look at sectorial theme if you say on the positive side I would say IT, pharma and private banks.

Latha: What about the VIX, how do you expect the VIX to move in this contract? We did see that big fall?

A: We have seen that big move which was understandable we had a lot of people kind of positioned for this kind of a move and the volatility index (VIX) post the events got over. Earlier there was this huge confusion whether the Saturday is going to be working and you ran the risk of an opening gap post the Budget.

All of that got taken out and between Saturday and Monday we saw almost like a 20 percent move on the VIX index with now the index trading around the 14 -14.50 odd levels. My sense is that given the lack of triggers in the markets, given the fact that we are looking at the kind of the range bound market we could see the VIX further drift down to probably about the 12-12.5 levels before the results season kinds of kicks in next months. At these levels there could be more down side on the VIX.

Sonia: Since you were talking about some of the pharma names which have been the best performers this year, let me also bring in  HCL Tech which has gained almost 30 percent this year already. It has been the best Nifty stock anything fresh in the IT space that you would recommend buying now?

A: That has been our favourite stock for over two years now and we kind of continue to keep it on the top of charts. The continuous earnings improvement that you are seeing in that stock that should continue to have HCL Tech kind of move higher. Among the other ones  Infosys and  Tata Consultancy Services (TCS) we should probably see them kind of breakout of the strong consolidation zone in the recent times and that could move. However, the stock which will outperform the broader IT pack will be HCL Tech.

Latha: Your top midcap pick?

A: It is not a futures name but one name which we have been fairly bullish on for a while and we continue to like it is amongst the top pick as a house as well is National Buildings Construction Corporation Ltd . (NBCC), the New Delhi construction company government owned

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