In its monthly F&O rollover note, Nuvama Institutional Equities said the April series typically exhibits a stronger bias towards Nifty Bank. Historical data suggests that April has delivered an average positive return of 3 per cent in 70 per cent of the time over the last 10 years.
"At present, the positioning in banking appears to be heavily short in my opinion, indicating the potential for some covering-led action, which could result in gains of around 2-2.5 per cent by mid-month," said Abhilash Pagaria of Nuvama Alternative & Quantitative Research.
That said, Pagaria advised traders to consider setting up a short position at around the 48,400 mark, as he does not foresee any significant outperformance. One should approach trades with a 1 per cent stop loss, he said.
"FIIs have heavily committed to long positions in single stock futures, with their longs nearing all-time highs. Similar positioning was observed at the end of December 2019 and around June 2020. Historically, during phases of such heavy long positioning, markets have tended to languish and trade within a range of 200-400 points for the next few days," Pagaria said.
What Nuvama likes
On the long side, Nuvama prefers the metal pack (Vedanta, JSW Steel) and pharma names. The momentum in auto names remains strong and is expected to continue until signs of frothiness emerge, Nuvama said adding that the IT basket continues to be a short candidate for it, as there are no discernible signals in the derivative data to warrant a contrarian bet.
"Recently Nifty 50 excluded UPL can also be looked like a contrarian bet and generally post exclusion we see stocks seeing some rebound. Also, April seasonality is strong for UPL with 80 per cent time it settled in green with avg. returns of 12 per cent," he said.
Regarding specific stocks, HDFC Bank could experience a positive uptick (2-3 per cent) in the next week as investors anticipate its march 24 shareholding and the possibility of weight up in the MSCI index.
"However, as per my math it remains a less likely candidate for wt. up in the MSCI May review.
Nuvama said the MSCI May 2024 probable are expected to perform well, and any declines of 5-6 per cent should be viewed as opportunities to add them to portfolios. Top contenders include Indus Towers Ltd, Solar Industries, Jindal Stainless, Bosch, Mankind Pharma, Torren Power, Canara Bank, ZYDUSLIF, Oberoi Realty, and Oracle Financial Services Software Ltd.