Rahul Sharma, Director & Head – Technical & Derivatives Research, JM Financial Services, says “there are two PSU stocks which we are very confident on. One is from the PSU banking space. The Bank of Baroda looks pretty strong at these levels. We feel there is a strong case for a target of Rs 285-295 on the upside, the PSU banking index has turned around, so can be bought with a stop loss of Rs 251. Another stock which looks good on the power side, Power Finance Corporation (PFC). The stock has been quiet for many weeks now and we feel the time is right for the stock to give an up move, so can be bought with a stop loss of Rs 394 and an initial target of Rs 425.”
Today’s the day of the monthly expiry. Should we brace ourselves for a 3 pm move?
Rahul Sharma: Yes, it has been quite a subdued one so far. But the good thing is the mid-month crash got over last week. Post that, we have seen a very smart recovery. Now, we are heading on to the main series, which has historically been a very positive month out of like 10 times Nifty has been in the green 7 times in the last decade and at the same time we have also seen ultra-low levels on the India VIX which is suggesting that the option participants are not fearful of like a big down move at this point in time.
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So, 22,000 is a very strong base for Nifty going into the May series and any expiry above the 22,425 mark today, should be a strong case for a sharp up move in the initial few days of the May series. So, we are quite positive on the index with a very limited downside.
The best thing to do at this point in time is have a basket approach where still the quarterly numbers are coming in, which stock moves first or which stock gets hammered, it is difficult to predict in this kind of a setup. I think the basket approach is something that we are advising clients where the risk is diversified. At the same time, if somebody wants to play defensive, Nifty is the way to go, especially above the 22,425 closing where we expect Nifty to see a good up move, possibly up to 22,800 in the first few days of May series.
I am not sure whether you have looked at that data point which says that whenever there is such a sharp crack in the India VIX in the last 2008 onwards, the subsequent 1 month, 9 times have been in positive territory, around 4 times in the negative territory. Have you looked at that data? Any thoughts? After the VIX crack, next 1 month, 3 months, 6 months, how does that pan out for the market?
Rahul Sharma: Our team has done this data work which says that below 10.5, India VIX has gone down only 4 times in the last 16-17 odd years and out of those 4 times, 2 times the returns have been negative, once the return has been positive and once the return has been flat. So, the average return has been minus 0.3%, especially when India VIX has gone below 10.5. This is indicating that we may not go down in a big way, but at the same time this has happened just before the month of May which has been positive otherwise. I think the chances of the Nifty going up in green, possibly towards the 23,000 mark is pretty decent and I would take that especially given the stress test that we have had just last week in the Nifty when the Nifty made the low of 21,777.
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Any top recommendations in terms of the charts that look interesting? What would you want to bet on for the May series?
Rahul Sharma: There are two PSU stocks which we are very confident on. One is from the PSU banking space. The Bank of Baroda looks pretty strong at these levels. We feel there is a strong case for a target of Rs 285-295 on the upside, the PSU banking index has turned around, so can be bought with a stop loss of Rs 251.
Another stock which looks good on the power side, Power Finance Corporation (PFC). The stock has been quiet for many weeks now and we feel the time is right for the stock to give an up move, so can be bought with a stop loss of Rs 394 and an initial target of Rs 425, but structurally we feel that once the move starts, it can have long legs on the upside. These are two buy recommendations, both of them on the PSU space.
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