Given the bullish market outlook, it is time to buy into most of the index stocks
As we expected, the broad market remained almost stagnant till last Friday, moving within a narrow range. On Friday, the Nifty closed 13 points above its previous close.
Over the week, the index gained 23 points to close at 971. The Nifty future prices remained almost stagnant over the week. The October future closed the week at Rs 970, which is 2 per cent higher than its last week's close at Rs 949. Except on Thursday, the October Nifty future has been traded at a premium to the cash market.
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As per our expectation both Hindustan Lever and Reliance consolidated over the week that helped the broad market to consolidate. Foreign institutional investors were net sellers for the first three days of the week, while mutual funds remained net buyers all along.
Hindustan Petroleum Corporation (HPCL) came back to the forefront with good volume, after usual high volume counters such as Infosys and Satyam.
With a regained hope of disinvestment, HPCL bounced back and closed at Rs 217 last Friday. The October future of HPCL gained a huge 20 per cent over the week to close at Rs 217.70. Saturday is likely to be the day that would decide the fate of HPCL and BPCL. Other wise we would recommend a long straddle -- buy both a call and a put - so that heads you gain, tail you gain.
The market hailed up the second quarter result of Infosys. Still the October futures, at Rs 3725, remained two per cent below the previous week's close of Rs 3789.80. The future settled at a discount of Rs 72 to the cash market.
The Satyam October future continued losing till last Friday, when the stock bounced back by Rs 11 over its previous close. Following the cash market, Satyam October futures gained two per cent over the week to close at Rs 212.65.
"I don't see much downside in the broader market from the current level. Reliance might put some downward pressure on the indices for sometime but it should not be of much significance. I think, it is the right time to buy in most of the index stocks," a Delhi-based portfolio manager said.
We expect the Nifty to continue its upward journey at a slow pace over the current week. Of course, the second quarter results of some pivotal stocks might upset the market a little, but general market sentiment is expected to remain bullish.
Last week, we asked you to wait to sell a Nifty October 930 put. Now we revise our recommendation to sell October 950 put with little risk. If you want to reduce your risk go for a bull spread. That will, of course, also limit your return.
In case of individual stocks, we are bullish on Infosys. One can go for a bull spread. We don't see much risk in buying the November futures. Cover the same with a long November put. We continue with our earlier recommendation on Satyam. If you are holding the stock in large amounts, continue with your long put position covering the downside. And it is advisable to keep the downside covered till second quarter result is declared. Continue with our earlier recommendations on ITC - short in October 670 call or long in same month 630 put or a bear spread.