Market Sees Dismal Volumes, Low Trading Interest

Updated: May 18 2003, 05:30am hrs
When the market seemed caught in a range-bound web, banks, power, auto ancillary, textiles and other mid-cap stocks drove the rally. Even the nervous technology sector witnessed some signs of relief. The S&P CNX Nifty index rose by almost 4 per cent to close at 973.10 level on Friday. CNX Midcap 200 and CNX Nifty Junior clambered by almost 7 per cent that clearly reflects the source of buying interest in the market.

The signs of market relying on the banking sector is clear from the fact that SBI, Oriental Bank and ICICI Bank were among the top five counters that registered highest upsurge while Dabur and Hero Honda were the other shares in this pack. Though some correction was witnessed in the banking scrips on Friday, it was more of a technical correction on the expected lines. Market breath has been positive with 44 out of 50 shares in Nifty index registering rise.

The derivatives market posted dismal volumes with trading interest remaining extremely low on Monday and Tuesday. Week-on-week basis, turnover in F&O segment declined by almost 4 per cent to register an average daily turnover of around Rs 2,135 crore. The trading interest shifted from the individual stock segment to index options and futures as investors felt more comfortable taking their bets on the overall market.

Index Futures
A total of 68,953 Nifty futures contracts were traded in this segment with significant trading interest witnessed on Friday when the cash market registered smart gains. On the other hand, outstanding positions consistently declined during the week that is a usual phenomenon observed at the time of rise in Nifty index.

The cost of carry moved in the negative zone for most part of week that indicates hesitation among investors to accept the upsurge as sustainable rally. Many of the investors were selling Nifty futures when the index was rising. These trends are indicating a likely correction next week and the market is expected to be moving in a narrow range.

Index Options
Nifty options also witnessed increase in trading interest with a total of 21,588 contracts traded during the week, almost 33 per cent more as compared to last week. Significant activity was observed in Nifty calls and puts at 940 and 950 level that indicates a range-bound outlook for the coming week.

The put-call ratio rose consistently during the week as the market registered an uptrend. It indicates that investors are currently protecting their portfolio against any fall by buying put options. Further, the implied volatility remained almost constant in 13-15 per cent range for both calls and puts that hints at low volatility in the next few trading sessions.

Options On Individual Shares
Satyam, Infosys, SBI, HPCL and Reliance were the top-traded counters in this segment. The put-call ratio levels have come down for some of the technology counters namely, Satyam, Digital, Infosys and Wipro that indicates slightly better outlook. It seems that the valuation of these counters are getting in line with the expectations of investors.

SBI was undoubtedly the biggest counter that witnessed significant increase in trading following rise in cash market price. The open interest rose sharply especially for the put options, a clear indication that investors are protecting themselves against fall. Currently, ICICI Bank, BPCL and L&T are prevailing at low put-call ratio and investors should have a closer look at these counters.

Futures On Individual Shares
This segment witnessed a total of 2,63,492 contracts traded during the week. The banking effect was visible in this segment too as trading interest rose sharply in SBI futures.

At the close of market on Friday, Reliance and Polaris were prevailing at high negative cost of carry that reflects some correction in these counters. At the same time, Mastek, Telco, HCL Technologies, NIIT and HPCL are prevailing with positive cost of carry in double digit figures. Investors should carefully watch these counters because they may witness some volatility.

Outlook For Future
Despite the uptrend witnessed during the weeks trading, the coming days are likely to witness some resistance. The cautious undercurrents could be observed from the fact that JP Morgan has advised investors to book profit on banking counters specially the ones in mid-cap segment. However, their outlook on SBI is extremely bullish.

Based on the trends prevailing in the cash market and the F&O segment, the market is presently moving in an extremely crucial range. It needs to sustain these levels in coming week to propel any sacred rally. Though some correction may come in the counters in banking, auto ancillary and textiles sector, other old economy sectors including cement, steel and pharmaceuticals need to be watched carefully.

(The writer is faculty member at the Lal Bahadur Shastri Institute of Management, Delhi and can be contacted at sandeep1973@hotmail.com)