Nifty likely to move between 5360 & 5530

Nifty has been moving in a rising trend channel since November 2009 and is currently near the upper end of the channel at 5500-5530. It had taken strong support at 5360 in the near term and is unlikely to breach the same in a hurry. However, the upside seems capped and it will be reasonable to book profits in long positions at around 5480-5500 level.

The market is expecting a hike of 25 bps each in the repo and reverse repo rates. However, with inflation being a major cause of concern, any indication by the RBI of aggressive tightening of monetary policy may put interest-rate sensitive stocks like PSU banks, real estate and auto stocks under pressure.

In the short term, oil & gas stocks like Reliance Industries, HPCL, IOC and BPCL appear strong as do pharma stocks like Cipla, GSK and Lupin. Real estate, PSU banks and metal stocks may see some correction. BoI, DLF, Welspun Corporation and HDIL appear weak.

Huge call writing was seen at strike 5500 while put options of strike 5300 have the maximum build-up. Profit-booking took place in Nifty put options of strike 5500 on Monday, which shed open interest by 11610 lots. Options data suggest that Nifty will hold on to 5300 in this expiry.

We recommend initiating a long position in Cipla August Futures at `326 with a target of `340 and a stop loss of `321. Traders may also initiate a bear spread in DLF by going long in August 320 put options at `15 and going short in August 280 put options at `4. The strategy will be profitable if DLF closes below ` 309 on expiry. The maximum potential profit from the strategy is ` 29,000 while the maximum possible loss is Rs 11,000.

Vinit Pagaria, V-P Investment Strategies, Microsec Capital