The S&P CNX Nifty index rose by around 2.72 per cent during the week to close at 1601.60 level on Friday. The BSE Sensex prevailed at its two-month high following strong buying interest. BoB, Canara Bank, HDFC Ltd, Reliance and Tisco were the counters that fuelled the rally, while Hero Honda, M&M and Shipping Corporation were the major laggards in last five trading sessions.
The F&O market welcomed the new turnover tax proposal by the finance minister, where in he has reduced the tax on derivative trading to one basis point. The outstanding positions rose substantially across the board. Overall, the trading interest was reasonably high in this segment and rollover activity began from July expiry to August contracts.
Nifty futures contracts witnessed a sharp increase in outstanding positions with around 8,000 contracts added during the week. The trading volume was high on Thursday and hardly 10 per cent of the positions got rolled over to the next month.
The cost of carry remained in negative territory. Based on trends witnessed in Nifty futures, the market seems to be in the bullish mode and may rise by around 5 per cent without much hassles, however, the going is not expected to be too smooth thereafter. The technology counters didnt witness much of the action that is reflected in the dismal trading interest in CNX IT futures. The cost of carry moved in and out of the positive territory during the entire week. This segment is expected to remain subdued even during the next week.
This segment witnessed substantial trading volume with open interest high in Nifty calls at 1650 and puts at 1450 and 1500 levels on Monday. As the week progressed, both Nifty calls and puts witnessed a major chunk of open interest shifting to 1600 level for July expiry. Moreover, the open interest in Nifty puts was at its all time high. It indicates that some investors have taken long straddle position at 1600 strike.
The put-call ratio increased to 0.94 level on Friday and implied volatility remained largely stable during the week. Based on these numbers, it seems that market is poised for the range-bound moves with an upward bias. Though, there may be intermittent correction after every 50 points rise, it is expected to remain shortlived given the present sentiment.
Options On Individual Shares
Lot of investors took position in this segment, specially on Thursday, leading to a build up in outstanding positions across the board during the week.
The time is appropriate for buying options for August expiry. Investors may buy the calls on Arvind Mills and Shipping Corporation near the current cash market price as these shares are expected to witness an uptrend. On the other hand, one should look at the banking counters with caution. Therefore, it would be worthwhile to buy put options on PSU banks, specially BoB, to gain from any downfall in share prices. Stock option segment should get a boost in trading interest after the low turnover tax imposed by finance minister on F&O transactions.
Futures On Individual Shares
The open interest rose sharply for a number of scrips in this segment which includes ACC, Hero Honda, M&M, SBI and Tisco, while it declined for Infosys and Reliance. Investors should be careful, while dealing in these shares as they are expected to witness some volatility during the next week. After reduction in turnover tax, the arbitragers are happy that they can carry out their business with some ease.
However, such opportunities are extremely limited at present. For example, investors may buy futures on BPCL and Hero Honda, and sell shares in the cash market to book risk-free profit.
The cost of carry has moved in the positive territory for a number of counters. Based on these numbers, Arvind Mills, M&M and Shipping Corporation are expected to witness uptrend and BoB may face selling pressure.
Outlook For Future
The FIIs have continued their buying spree and mutual funds have followed a cautious approach. After a while, the bulls have made their presence felt in the market with broad-based buying interest. The next week activities in F&O segment would largely include the rolling over of positions amid expiry of July contracts on Thursday.
The market may witness some volatility nearing the expiry because the current rollover has been too low. Going by the past experiences, the market may come across heavy buying on Friday, when investors may take fresh positions. Monsoon factor may play folly to the bulls party. This week is crucial as heavyweights including Reliance, Tata Power, Maruti and BoB are announcing their Q1 results. Overall, the market seems to be well placed for a steady uptrend.
The author is Associate Professor at the Lal Bahadur Shastri Institute of Management, Delhi and can be contacted at firstname.lastname@example.org