Use derivative options and refrain from any naked position amid volatility in markets: Sandeep Matta of TRADEIT Investment Advisor

Sandeep Matta, Founder, TRADEIT, Investment Advisor, advises traders to refrain from any naked position and use derivative options as a strategic trading tool while long-term investors can start accumulating quality businesses on an SIP basis.

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In an interview with Zeebiz's Kshitij Anand, Matta said that investors and traders should remain cautious and must do proper risk management in this testing time. Edited Excerpts –

Q) Benchmark indices shed more than 2% in the week gone by. What led to the price action on D-Street?

A) Past week was challenging for stock markets where the Nifty50 dropped by about ~3% while the Bank Nifty shed over 5 per cent.

Factors such as geopolitical tension between Russia-Ukraine, the surge in commodity prices, currency weakening, higher inflation, as well as fear of a US Fed rate hike ignited negative prices action in equity markets.

Q) How should investors prepare themselves for the coming week. What are the key levels that one should track for the coming week on Nifty and NiftyBank?

A) Investors and traders should remain cautious and must do proper risk management in this testing time.

Benchmark indices are giving wild moves on either side daily and maintaining stop loss on trades will be challenging due to higher VIX.

We advise traders to refrain from any naked position and use derivative options as a strategic trading tool while long-term investors can start accumulating quality businesses on a SIP basis.

Weekly Key levels for Nifty
Buy Zone Above – 16400 for the target of 16663-17080
Sell Zone Below – 16060 for the target of 15716-15505

Weekly Key levels for Bank Nifty
Buy Zone Above – 34950 for the target of 35754-37100
Sell Zone Below – 34000 for the target of 33478-32700

Q) Sectorally, auto, banks plunged the most. What led to the price action and do you think the pressure could continue in the coming week as well?

A) Banks and Automobile sectors are the lifeline of any economy and are FIIs favourite. In the past few months, FIIs are the net seller, and their selling volume is intensifying every week which leads to negative price.

There is action in banks and automobile sectors. Price pressure is likely to continue due to factors such as geopolitical tensions, fed rate hike, increasing inflation, year-end NAV adjustments, etc.; however, the rate of fall may decline, and any positive development will bring a swift uptick on these counters.

Q) India VIX above 29. What does it suggest? Should investors brace for more volatility? What does the history suggest?

A) VIX which is also known as the fear index is currently trading between 28-30 and is likely to peak out between 33-35. Bottom formation for the market can also be expected at that level.

Volatility is likely to continue until VIX starts trading below 20. Historically, during unexpected events such as Covid, 2008 recession, etc. -- VIX has surged to 85, and markets bottomed out and that triggered a strong rebound from those levels.

Q) What should investors do with small & midcap stocks? Time to buy or time to exit high beta, high PE stocks? What are your views?

A) Small and mid-cap stocks have always found a sweet spot in the retailer's heart, majorly due to their lower ticket size. However, during the recovery phase, the rate of price action is always delayed compared to large-cap counters.

We advise investors to assess the fundamentals of these stocks and try to reshuffle the existing portfolio a bit. The market is filling the valuation gap and many large-cap counters have corrected and are available on fair valuation therefore new investment should be in good quality stocks only.

Q) Any top 3-5 stocks that traders can look at for the March series?

A) Markets will continue to remain volatile and therefore investment approach will be more rewarding than the trading approach.

UltraTech, Maruti Suzuki, DLF, Balaji Amines, SBI, and Gujarat Gas are on our favourite list and may outperform the market in March Series.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)