Nifty may touch 5250 on expiry

The markets remained rangebound amid declining volumes last week as consolidation set in at higher levels.

The previous week’s gains, subdued by global cues and year-end pressures contributed to the dull sentiment. The Nifty gained just over 1% to close at 5145 with the cost of carry (COC) improving to 10 bps from neutral levels.

The open interest (OI) in Nifty was almost flat at around 25 million. Frontline buying in Reliance Industries, ITC and ICICI Bank may have contributed to the positive sentiment in Nifty.
The options of 5000 series indicated crucial support in case of downmove as the put-call-ratio (PCR) remained above 1.5.

Volatility levels have remained around 20, indicating lesser inclination by traders and investors to hedge. I infer continuous stability in Vix (volatility index) at lower levels with OI on the lower side as signs the market is light on the long side on leverage basis. This is corroborated further by low COC across stocks of 25-30 bps.

As delivery-based activity has remained low and the market is in consolidation mode, unless selling intensifies in the spot market, shorts trades are not benefitted. Lack of long bias in positions is resulting in low Vix. This may help market move up once consolidation is over.

Globally, too, short interest has been on the decline. The problems in Greece, which have heightened the UK debt problem, have not kept investors from pushing the FTSE to new highs. Even crude has remained firm, indicating higher risk appetite.

Sectorally, PSU banks witnessed consolidation, with some profit-booking in SBI, BoB and PNB. ICICI and Axis Bank continued their upward journey with higher volumes. Banking is likely to gain further post consolidation. Reliance Capital seems to be showing strength and may move up by 5-8%.

The infrastructure space has witnessed an increase in longs, indicating fresh gains after consolidation of the last two weeks. Reliance Infra, Nagarjuna Cons and Patel Engineering look good.
Sugar stocks have seen huge shorts with price declines and may witness short-covering. Renuka Sugar is the best pick — it may bounce back to Rs 160-165 levels from Rs 150 levels now.

IT stocks are likely to remain firm with TCS likely to outperform Infosys and Wipro. In mid-caps, Patni looks very strong followed by Tech Mahindra and Rolta.

In pharma, Cipla is good candidate to go long on. Reliance and ONGC may inch up further if the market remains stable-to-positive. Hindalco and Tata Steel may witness fresh longs. In mid-caps, Hotel Leela, Essar Oil may gain.

Overall markets may remain rangebound and become healthier if there is a correction of 100-odd points. By expiry, the Nifty may inch up towards the 5200-5250 band. It may move past 5300 in the coming months to enter the higher band of 5500-5700.

 The writer is director - institutional equities and
chief strategist, Fiduciary Euromax Capital Markets Ltd