Marketmen play safe as Budget nears

Written by fe Bureau | Mumbai | Updated: Jun 27 2009, 02:20am hrs
Markets remain grounded in run up to the Union Budget. Investors took a cautious approach ahead of the forthcoming Union Budget as open interests (number of outstanding contracts that are not closed out) carried forward to the July series in the derivatives segment stood at 64%, down from 70% reported in previous months. Nifty July futures closed at 4,259.70 on Thursday, commanding a premium of 17.85 points over spot Niftys close.

Experts attribute the significant premium in the Nifty July futures to heavy selling in the cash market during the late hours of trading on June 25 that resulted in Nifty closing the day at 4,241.85 points, losing 51.10 points, or 1.19%. Sensex of the Bombay Stock Exchange (BSE) closed 14345.62 points, down 77.11 points.

Market participants said heavy selling occurred on account of portfolio reshuffling by fund houses triggered by the National Stock Exchange (NSE) moving to free-float market capitalisation methodology in computation of Nifty from June 26.

Following this, fund houses will have to initiate changes in their portfolio according to the new weightage of Nifty constituents.

Experts do not expect a significant correction as the Nifty is trading lower by 8% compared to its peak of 4,655.25 points recorded on June 10. Moreover, the rollover has been less this time and the implied volatility (IV) that captures investors expectation of future volatility, of the Nifty options, is at a high of 43%.

Rather than selling futures, our advice to clients is to take long positions on every dip, said Sidharth Bhamre, fund manager and derivative analyst at Angel Broking adding that there was significant amount of long positions in the market. Not all long positions have been carried over to the July series. This indicates that there is liquidity in the system and bulls are waiting for a dip to re-enter the market. So we dont see significant downside from the current level, he said.

Nifty is enjoying strong support at 4,100 level. Now that uncertainty over shifting to free float market capitalisation methodology is over, we expect the volatility to reduce and the market to stabilise, said Yogesh Radke, derivative analyst at Edelweiss Securities.

Among individual stock futures, investors carried forward their outstanding open interest position significantly in auto sector stock like Hero Honda and M&M, financial sector space such as LIC Housing Finance and IDBI and in the mid cap stocks and IT sector stocks.

Provisional figures provided on Thursday by the stock exchanges showed foreign institutional investors (FII) sold net equities worth Rs 1,482 crore, domestic institutional investors bought net equities worth Rs 1118.05 crore. Market breadth indicating overall health of the market remained positive with 1,410 stocks in BSE advancing compared to 1214 stocks that declined.