Time to buy Titan and short Reliance, says Rahul Sharma - The Economic Times

"We are going with a long short approach. One stock that we like on the long side is Titan. This stock has been under pressure since November 22, after around three, four months of underperformance. There is finally some technical reversal that is seen on the daily charts. In fact, volume participation also has been quite comforting. This stock should see a good round of up move," says Rahul Sharma, Director, JM Financial Services.

Sharma also says that one can look at shorting Reliance at these prices. The stop loss can be placed at Rs 2,290, which is the high that was formed this week. Another round of down move, which is a possible base formation, is expected

What is your perspective on Nifty considering that event risk is now behind us and the recovery we have had versus global markets. Is this the start of a trend?
A lot of negatives are already factored into the price. We have seen the event through. We have seen India VIX cooling off to around 14 levels. S&P 500 VIX, which has been a cause of concern for the US markets, has also cooled down significantly in the last few days. Going by the way we are shaped in terms of the derivatives positioning of the market, which is FIIs at extremely high levels of shorts. The shorts are alarmingly high and essentially a market which refuses to go down. So, we have done the 16,800, 16,850 kind of a test of the floor a couple of times in the last few days and every time the buying has just sprung back in.

This time around, if Nifty does cross the 17,210 mark, that should invite short covering, especially given the way banks have been leading the market in terms of reaching the 200-day EMA. Bank Nifty has been the first index to do that amongst the two. Whenever we have seen in the past that banks have led the rally, we have seen the Nifty gradually following up with the Bank Nifty.

Clearly, it is a strong case for a possible short covering rally. If it happens, we should see 17,500 to 17,600 on the Nifty, whereas Bank Nifty could very well be headed towards the 41,200 to 42,000 kind of a mark on the upside. So, still we are range bound. But positionally, as long as we remain above the 17,000 mark on a closing basis, we should see a good recovery happening and eventually the shorts getting challenged in a significant way.

I got the point that a short rally is something which can happen. FII net positioning is 90% short as of yesterday. You think it was based on this event risk and that is why you believe that people who were just waiting for this event or maybe the next event to fold out will tend to cover, whether it is in their favour or not in their favour?
FIIs have been aggressively shorting the market since the last three months and now that we have gone to record levels, the entire concern is in terms of the extremely negative outlook of FIIs. My sense is once the positioning is done and once market refuses to break the 16,800 floor, eventually we are approaching the monthly expiry as well and this time it is happening one day earlier.

We just got around four trading sessions after this. That will also put a lot in terms of whether to roll over or not, whether to carry these positions in the next month. Next month, we also have the Q4 or the annual numbers coming up and that should definitely be a cause of concern, especially the way we are positioned on a consensus side.

Consensus trades generally do not go right, which is why I believe it is better to be a contrarian at this point in time. Speaking of levels, this is one area where eventually the shorts will get tested. 17,210 is the level for today. If it happens today, it could intraday cause an up move which could take us towards the next resistance at 17,300.

But technically anything above 17,300 should be a positional trigger which should see us extending the gains towards 17,600 odd. Having said that, as long as banks remain strong, as long as Bank Nifty sustains above the 40,000 mark, the possibility of what we have said happening remains on the higher side.

Since you pointed out about the monthly expiry and the various things that will be at play there, I wanted to check with you if you have looked at the latest. This does not exercise option, which has been coming in from the SEBI. What kind of impact do you anticipate?
Because we had the expiry and we had this right to exercise, the margins were on the higher side. A lot of brokers were not allowing to trade options, which were close to the money, which is why we had also seen a volume drop happening as well.

Now, with this being pulled out, obviously it will increase the participation, especially in the expiry week, which is where the premiums are very low and one can expect a bit of volatility to come back. My sense is it is good in terms of market participation. It is good in terms of the volatility, which we generally are associated with in the expiry week.

Also it will help in reducing the margin requirement for the same. So net-net, it is good for the market participants to have more of the money options which are available. Eventually it should be a more constructive and a positive development as far as the volumes are concerned.

Give us your top stock recommendations as well. You are talking about going contrarian, have a bullish stance. So what are the top stock ideas?
We are going with a long short approach. One stock that we like on the long side is Titan. Now, this stock has been under pressure since November 22, after around three, four months of underperformance. There is finally some technical reversal that is seen on the daily charts. In fact, volume participation also has been quite comforting. My sense is this stock should see a good round of up move.

The first leg could see the stock heading towards the Rs 2,650 mark. Although from a medium term perspective, we expect the stock to go even higher than Rs 2,800-2,850. As a trading buy, one can look to buy Titan with the stop loss placed at 2440 and one can expect a good bit of up move in the same. The second one, which is on the short side, has been a cause of concern. It is an index heavyweight. That is also one reason why we have seen the underperformance in the Nifty with the correction in the Nifty getting extended thanks to Reliance.

Now, Reliance is a sector in itself, but somewhere or the other, it has not been able to cross its 20-day exponential moving average. In fact, all the short-term and long-term moving averages are suggesting bearish bias in the same. In fact, a sell-on-price approach is what is advisable. And after the recent up move, we believe that the up move has played its part and another round of down move can happen. So we are expecting the floor of around 2200 to 2180 being retested in the same. It is a trading short.

One can look at shorting Reliance at these prices. The stop loss can be placed at Rs 2,290, which is the high that we formed in this week. And we expect that another round of down move, which is a possible base formation, could be in the process as we navigate this period of volatility. So a long and short approach; once Nifty crosses the 17,300 mark, that is the time we can possibly be all in all long. Until then, I think it is best to take a balanced approach in the market, given the kind of texture that we have in terms of stocks.

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

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