An Eventful Week Marked The End Of First Half

Updated: Jun 30 2002, 05:30am hrs
With buoyancy getting back to the US market, Indian bourses also heaved a sigh of relief in a week that marked the end of the first half of year 2002. The week has been eventful with both favourable and adverse scenes cropping in the market. All attention was diverted to the state of Reliance patriarch Dhirubhai Ambani, who suffered a stroke on Tuesday and is critical since then.

In the US market, WorldCom and Xerox made the headlines with accounting irregularities leading to a dire state of affairs. Overall the week closes with S&P CNX Nifty losing around 1 per cent during the week. Out of the 30 shares available in the derivatives segment, two-third registered gains ranging from 0.11 per cent to around 8.5 per cent.

The derivatives market also witnessed lot of action amid the expiry of June contracts. The volumes were high and the positions started building up in July contracts across the board. As compared to the previous week, implied volatility and put-call ratio declined in option contracts while the price of future contracts became more in line with the cost of carry model with fewer exceptions. This led to the reduction in arbitrage opportunities though some such opportunities still existed.

Index Futures

In this segment, a total of 25,238 contracts were traded during the week, a half a per cent fall as compared to last week. The Nifty futures moved in line with the Nifty index during the week. The cost of carry ranged between 6 per cent and 11 per cent for July contract and thus did not offer any opportunity for arbitrage. The volatility in Nifty futures was observed to be higher than the Nifty index with Nifty July futures moving almost three-fourth point for every point movement in Nifty index.

Based on the trends observed in this segment, the market reflects a slightly bullish or range bound undertone in the short-term.

Index Options

The volumes rose sharply with 80 per cent of Nifty call options and 53 per cent of Nifty put options expiring worthless for June contracts during the week. The put-call ratio for open interest as well as number of contracts traded declined sharply on Friday. The implied volatility ranged between 13 per cent and 16 per cent for both at-the-money call and put options and thus was lower than the historical volatility during the week. These trends, on one hand, hint towards a positive market movement while on the other they should be examined cautiously because a major chunk of trading this week comprised of rollover trades. The building up of open interest at 1,100 level for call options also indicates the market uptrend and further confirms the positive bias.

Options On Individual Shares

In this segment, Satyam, Reliance, Infosys, M&M, Tisco, Telco and L&T were the top traded contracts. ACC, Digital, HLL, ITC, Reliance Petroleum, Sterlite Optical and VSNL were the other volume gainers during the week. HPCL, L&T, M&M, SBI, Sterlite Optical and Tisco registered put-call ratio lesser than 0.25 for open interest and outstanding positions of more than 500 contracts at the weeks close. These shares should be watched carefully during the coming week.

Overall, the signals are positive with low put-call ratio, low implied volatility and low option premium.

Futures On Individual Shares

As expected, the volumes were very high in this segment with HLL, M&M, Reliance, Reliance Petroleum, Sterlite Optical, Tata Tea, Tisco and VSNL registering significant volume gains during the week. Unlike last week, the cost of carry remained in line with the interest rate and dividend yield for most of the stocks except for L&T, SBI, ITC and M&M. These stocks witnessed negative cost of carry and thus reflected discrepancy that may be on account of the lag effect, ie the time taken by the futures market to adjust with the changes in cash market. As the market is moving towards more sophistication, such risk-free profit opportunities would be captured more promptly by short selling in cash market and buying in the futures market.

Outlook For Future

After a while, FIIs were seen returning to equity with a net inflow of around $20 million during the week. The GDP growth numbers are encouraging. The sustainability of the market uptrend is yet to be established given the fact that buoyancy on Thursday and Friday may have been triggered by the quarter-end adjustments done by institutional investors to window-dress their performance. From here, the market seemed to be struggling to find the right direction. The cabinet reshuffle scheduled on Monday may lead to some volatility in the market. The exact impact of the US market is unclear amid concerns for accounting fallouts, but at the same time, the stronger consumer confidence in the US may act as a catalyst. Further favourable monsoon may also help improve the sentiments.

Overall, the market would remain range-bound and may witness high volatility on Monday and Tuesday. Further, investors would look forward to the quarterly numbers that would start pouring in from July 10 onwards and any speculation pertaining to the same may drive the sentiments.

(The writer is faculty member at the Lal Bahadur Shastri Institute of Management, Delhi and can be contacted at