Open interest in Nifty futures at record high

Mumbai, April 19 | Updated: Apr 20 2005, 05:42am hrs
Huge build-up in hedging positions and speculative short-selling from market participants have seen a substantial rise in the open interest (OI) positions in Nifty. The OI position in the Nifty is quoting at its all-time high of 1.96 crore shares. The fear of markets correcting sharply has seen the OI position being added by nearly 31% (42 lakh shares) in April.

Short-selling has also widened the discount between Nifty futures and Nifty spot. Nifty futures (1891.2) is trading at an 18.2 points discount to the Nifty spot (1909.4). Interestingly, the huge discount between the futures and the spot markets is at its 10-month low. Previously, such a huge discount was quoted on June 30, 2004, where the discount was at 20.70 points.

Amit Rathi, director, Anand Rathi Securities, said: Players had anticipated a correction, which is why the gap between the futures and the spot market has increased gradually.

In the last five sessions, between April 11 and 19, the discount between futures and spot has widened from 3.65 points to 18.2 points.

Mr Rathi said the market is anticipating a further fall, following uncertainty over the rise in global interest rates.

As a result, players, including FIIs are increasingly hedging their positions. In India, FIIs hold a portfolio of nearly $50 billion. In April 2005, FIIs have been sellers in index futures, to an extent of net outflow of Rs 465 crore.

Vijay Bhambwani, CEO, BSPLindia.com, said: players are safeguarding their portfolios, following the uncertainty in the domestic market. With our markets taking a cue from overseas markets which look volatile, players have hedged their portfolios by taking short or long exposures. This has seen a rise in the OI position in the Nifty.

Sensing weakness on the domestic bourses, some players have also taken speculative positions by going short on the Nifty, widening the discount between the Nifty spot and the Nifty futures, added Mr Bhambwani.