Initiate moderately bearish put spread in Nifty50: Rajesh Palviya, Axis Securities

Nifty50 has breached 17,000 levels on a closing basis, which may push the index higher. However, in the corrective phase, the index may test 16,800, said Rajesh Palviya, VP - Technical and Derivative Research, Axis Securities. He suggested that investors can initiate a moderately bearish bear put spread to make the most from Nifty and Nifty Bank in the coming session. He has also recommended a host of stocks across the sectors and segments. Edited excerpts:

Nifty regained the 17,000 level during the week after losing it. What were the key factors that pushed the markets higher? What are the near-term resistance and stop-loss levels for the index?
Nifty has witnessed a strong rebound from 100-day SMA (16,727) and reclaimed the 17,000 psychological mark on a closing basis. The index has ended its corrective phase at around 50 per cent Fibonacci retracement (16,640) of the prior up move (15,183-18,096).

On a weekly time frame, Nifty has also confirmed a short-term trend reversal - Hammer- candlestick pattern on a closing basis. With Friday's high (17,429), the index has retested an overhead resistance zone of 17,450-17,500 levels. Hence, any decisive close above the same may lead upward momentum towards 17,800-18,100 levels. On the flip side, 17,100-16,800 levels remain a firm support zone.

Nifty Bank also moved in the tandem with the headline peer. What is your take on it? Do you think its Banking index is outperforming in the near term or any signs of correction in it?
The nifty bank has also moved in tandem vis a vis its peers, as the index geared up from its multiple support zone of 37,500-37,300 levels. The positive crossover of the 100-day SMA and 200-day SMA reconfirms the bullish trend.

However, the closing above 39,800-40,000 levels will confirm the continuation of the bullish trend. In such a scenario Nifty bank may test the levels of 40,500-41,500 levels. Conversely, 38,000-37,400 levels may act as a strong support zone.

What should be a trader's strategy for the current series expiry? How should they trade in Nifty and Bank Nifty to make the most of it?
Traders can initiate a Moderately Bearish strategy with reduced premium outflow and lower breakeven point called Debit Put Spread or Bear Put Spread for the 20th October Expiry, wherein the trader will buy one lot of 17,200 Put strike @ 168 and simultaneously sell one lot of 16,900 Put strike @ 81 so that net outflow or maximum loss will be restricted to up to Rs 4,350.

On expiry, if Nifty closes below 17,110, the strategy will start making a profit. However, the payoff of strategy is that of limited profit and limited loss as there is one out of the money sold put. The maximum gains will be restricted up to Rs 10,650 because the gains of the long 17,200 strike Put will be offset by the sold 16,900 strikes Put if Nifty closes below 16,900 on expiry.

For Nifty Bank, traders can initiate a moderately bearish strategy with reduced premium outflow and lower breakeven point called Debit Put Spread or Bear Put Spread for 20th September Expiry, wherein the trader will buy one lot of 39,000 Put strike @ 535 and simultaneously sell one lot of 38,500 Put strike @ 360 so that net outflow or maximum loss will be restricted to up to Rs 4,375. Nifty Bank on expiry if it closes below 38,825, the strategy will start making a profit.

However, the payoff of strategy is that of limited profit and limited loss as there is one out of the money sold put. The maximum gains will be restricted up to Rs 8,125 because the gains of a long 39,000 strike Put will be offset by the sold 38,500 strikes Put if Nifty Bank closes below 38,500 on expiry.

Midcap and smallcap stocks were high in spirits during the week. What is your take on them? Do you see them holding gain amid the current economic environment? What are your top picks from midcap and smallcap segments?
The Midcap and Smallcap indices have outperformed Nifty and Nifty Bank on weekly basis representing bullish sentiments. Both indices are well placed above their 20, 50, 100, and 200-day SMA which reconfirms the up-trend and is expected to outperform peer's in upcoming weeks.

Stocks like BHEL, Kalyan Jewelers, Allcargo Logistics, Bharat Forge, Federal Bank, IDFC First Bank, Sun TV, APL Apollo Tubes and Bharat Dynamics are our preferred picks.

IT, metals, and realty stocks were the standout performers for this week, which contributed the most. What is your take on these sectors ahead of the earnings season? Your top picks from these segments.
The BSE IT index has been consolidating for the past four months in a range between 31,000-27,000. The index is facing stiff resistance at 31,000 and 27,000 is acting as strong support.

The index is expected to continue consolidation. Once the index starts picking up momentum our preferred stock picks are Tata Consultancy Services, Tech Mahindra, L&T Technology Services and KPIT Technologies.

The BSE Metal index has confirmed a medium-term trendline breakout, indicating a trend reversal, which was established in 15,200. The index throwback till the breakout area, and bounced back. The overall index is in a positive trend.

Resistance on the higher side is 20,500-22,000 whereas support is placed at 17,500-16,800. Stocks like Hindalco, Vedanta, JSW Steel and NMDC are our preferred picks.

The BSE Realty index broke above the falling channel, which it was consolidating from mid of November 2021. After a breakout, it witnesses a throwback to the upper band of the falling channel. which is placed around 3,300.

The index is expected to rally till 3,850 and is expected to continue to rally till 4,200. Whereas support is placed at 3,300-3,100. Stocks like DLF, Mahindra Life Developers, Oberoi Realty and Phoenix Mills are our preferred picks.

Which stocks and sectors do you think can deliver strong returns in the near term? Suggest some picks where traders can initiate a trade on a positional basis to make near-term gains.
Sectors like banking, automobile, pharma, chemical, and FMCG are expected to deliver strong returns in the near term as all these sector indices are trading above their short-term moving averages and sustaining above their short-term breakout levels. Whereas industry wise defence and cement are expected to perform better.

Our preferred picks are ICICI Bank, Bank of Baroda, TVS Motors Company, Mahindra & Mahindra, Eicher Motors, Cipla, Sun Pharma, Hindustan Aeronautics, Bharat Dynamics, Ambuja Cements, Jubilant Foodworks, United Spirits, Navin Fluorine and Tata chemicals.