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Derivatives and Quantitative Outlook…

* The banking space has remained largely a laggard in the last couple of weeks with stocks like HDFC Bank underperforming the Nifty by falling 17.5%, compared to 7.5% downside in the Nifty from its lifetime highs. However, early signs are there that underperformance of the banking space may be over vis-à-vis the Nifty. We expect sectoral heavyweight HDFC Bank to lead the recovery

* Most index heavyweight stock futures have started the April series with significantly low open interest. In contrast, the open interest in HDFC Bank has remained prominent while the current OI in the stock is the highest seen in the last six months. We believe the recent short positions in the stock are still intact. We believe short covering may trigger a fresh uptrend in the stock

* On the options front, with continued Put writing in 1400 and 1300 strikes, we expect the downside risk to be limited. On the other hand, ATM and OTM Call strikes have already started witnessing closure of positions suggesting upsides in the stock. The 1500 Call base for April series holds the highest Call base. However, intermediate recovery towards these levels cannot be ruled out

* In the last multiple instance, noteworthy delivery volumes were witnessed in the stock at | 1300-1400. We expect these levels to act as important supports for the stock in the short-term. The initial part of the bull rally in January 2021 was seen from these levels. We expect the stock to consolidate above | 1400 and stage a pullback towards its Call base

* In the recent market decline, the stock has found support near its long term mean+1*sigma levels and started witnessing recovery. Currently, these levels are placed near | 1380, which should remain an important support for the stock. We expect the stock to move towards its mean+2*sigma levels in the weeks to come

Buy HDFC Bank in range of Rs.1395-1415; Target: Rs.1600; Stop Loss: Rs. 1298; Time frame: Three months

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