Market to amble between 5200-5600: Violet Arch Cap

After yesterday's strong pullback, Mithil Pradhan of Violet Arch Capital Advisors believes that the market is going to remain rangebound between 5200-5600. In an exclusive interview to CNBC-TV18, he says that the strategy should be to buy into the market when it falls to 5200 levels.

On the downside, if the market does fall below 5000, Pradhan advices closing all long positions. "However, we believe 5200 has become a strong base," he added.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Did yesterday tell you that 5200 is holding out and we might actually move to the higher end of the trading range again?

A: What I feel at this point of time is that we are more or less going to be in this range of about 5200-5600. In fact, 5200 has become a very strong base.

The strategy that we are applying in this particular market is that we are buying on declines near 5200. Our worst case scenario is somewhere around 5050-5080. The strategy is if the market moves below 5000 then we might close all our long positions. But as long as the market is coming down around 5200, luckily around 5100 levels, we will definitely open longs in the market.

Q: We were talking about real estate. You are buying HDIL today?

A: Yes absolutely. HDIL has actually made three different lows, but every low failed to hammer down the stock. So basically I see it as failed breakouts. There are about two failed breakouts below previous swing lows, so I feel that it can easily move to about Rs 108-110 levels.

But again these targets would be on a conservative side because I feel the Nifty can move towards 5500-5600 range in the immediate short term. So I think the gains are pretty large in HDIL being a high beta stock.

Q: Yesterday infrastructure bounced back smartly. You have picked Reliance Infra in that pack?

A: When I look at the chart of Reliance Infra, I see a very large pattern which is completed. There are three legs to this particular pattern, which is an irregular flat. These kinds of patterns usually occur when there is a strong move expected on the upside.

I actually see these kinds of patterns in a lot of stocks, but it stands out in the case of Reliance Infra. I might have given a very conservative target, but if it really is able to move above the Rs 690-700 range, I think it can easily go to about Rs 780-790 range as well.

Q: What about the Bank Nifty? What is that suggesting to you technically now?

A: I think I am the biggest bull in the Bank Nifty as of today. Yesterday what has happened is that the frontline indices have broken a make or break level on the intraday charts. For Nifty it was 5336, accordingly for Bank Nifty. The way I see it is that it is likely to achieve the previous high that it made in February.

We are looking at completed patterns in most of the PSU banking names like Andhra Bank, Allahabad Bank. It may take a while for private banks like ICICI or Axis Bank to complete the larger patterns, but I would recommend very strongly to investors to get into PSU banking stocks, specifically SBI if possible, at any declines that they can get.

Q: Some of these FMCG stocks have been moving, things like Bata, Jubilant Foodworks, Godrej. Anything that you like there aside from ITC and Lever from the frontliners?

A: I really have trouble understanding the charts of ITC and HUL so its better I don't speak about them. I will speak about Bata India . It has made a great pattern breakout yesterday. It has created something called as an inverse head and shoulder and it had a breakout above that Rs 720 zone yesterday itself.

Looking at the basic technical tools for calculating objectives; I think Rs 892 is a level that I would look at based on the breakout from this inverse head and shoulder. In fact this is one stock that we are tracking a lot very actively. Whenever Bata comes down to Rs 720 levels I think it will offer a great buying opportunity.