F&O Talk | A note of caution amid record highs, look out for value opportunities: Sahaj Agarwal of Kotak Securities

The Indian equity market witnessed a positive week as both the Nifty 50 and Bank Nifty indices ended in the green. The Nifty 50 closed up 1.3% at 24,323, while the Bank Nifty settled at 52,660, up 0.61%.

Overall, the Indian equity market is likely to remain positive in the coming week as well, supported by strong Q1 updates.

Sahaj Agarwal, SVP Analyst, Derivatives, Kotak Securities, spoke to ET Markets about the outlook on Nifty and Bank Nifty for the coming week. Following is an edited excerpt from their chat:

The indices are once again at an all-time high. How do you think traders can make the most of these market conditions?

First of all congratulations to all the bulls for the phenomenal rally seen in the last 30-odd days. Yes markets are trading at all time highs. As exciting as it may sound, one must also look at the rather broader picture. In isolation, we remain long and strong with no liquidity or earnings issues in sight yet. Having said that, we have hit the cyclical target of 24,130 and hence some moderation in aggression is required. This coupled with global markets seem to be trading in a difficult setup suggesting limited upside. Overall, we would expect more stock specific activity with less aggressiveness on the index.

The current market is not a target market, but a trailing stop loss market. Your thoughts on this?

It is a well researched question I must say and speaks volumes about your interest in trading and markets. The fact is that many stocks are trading in a froth away from attractive fundamental or technical trend levels. It is imperative to be a trader and maintain a close stop loss or trailing level. Given the enthusiasm we have seen in recent times there is very limited value and trending ideas available.

As Nifty closes on Thursday, heavy call writers are placed on the upside on every strike while put writing is also quite high. In such a case where do you think the index is going?

I think that considering the broader picture, an extended phase of consolidation with high levels of volatility within the range is expected. As we speak for the next weekly series, the maximum OI is at 24,000 puts and 24,500 calls. One can assume this to be a trading range until we see a slight change in open interest.

Bank Nifty OI data is still soft. The number of outstanding contracts is fairly placed, unlike the Nifty, where the number of outstanding contracts is also very high. Do you think Bank Nifty is better to trade right now out of the two?

I believe the undertone of both indicators remains cautiously optimistic and, as you rightly mention, will trade with SL rather than targets in the current market setup. Immediate support range for Nifty is seen at 23,800-23,900 – this remains important from weekly as well as trend perspective.

Any other areas of focus? Recently, banking appeared to be a field of choice. Any shift from there?

Banking turned lower after the election results and played catch-up in the last few trading sessions. I think opportunities still appear in the BFI space – private midcap banks, insurance, NBFC stocks provide opportunities at current levels.

FIIs have started pouring in huge amounts again. This could be primarily a result of the infusion into HDFC Bank. How do you see this in the full picture?

After a heavily negative May, FIIs were on a shopping spree in June. July is also positive for now. The numbers look positive because of HDFC Bank. On the derivatives front too, the FII segment has gone net long in recent times. From their collective perspective things look fine. But it is only one pillar of the constitution and should not be considered as the ultimate guide.

With the upcoming budget, which areas should be monitored?

Focus on value opportunities. In case of any improvement, use it as an opportunity to pick good frontline names.

What are your thoughts on government imposing more tax on F&O income?

Frankly, I think the government is looking at the bigger picture for a strong base of investment and trade. Any constructive steps taken for long-term gains will be welcomed by the markets.

What will be your outlook on the indicators next week?

For the coming week, 23,800-23,900 is expected to act as a strong support level. In fact not only for the week but for the continuation of the uptrend, the level remains very important. As the markets are a bit weak today, I don’t mind taking a contra bet with a tight level in mind.

Any specific strategies for traders?

This is not the best time to be aggressive. Trade with levels as markets have given exceptional moves in recent times. Trade with discipline and an unbiased approach is advised for investors.

Any particular stocks that are technically well placed for trading on the charts?

SBI Cards and Payment Services – Support of 640 and target of 850/900. Bandhan Bank – Support of 167 and target of 250. Utkarsh Small Finance Bank support 44 and target 70.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)