On the other hand, the derivatives market registered record volumes with an average daily turnover in excess of Rs 1,600 crore during the week. Specially, on Thursday that was also the expiry day for July contracts, the total turnover on the derivatives segment of NSE crossed the Rs 2,000-crore mark, the second highest level seen in the history of derivatives market in India. Part of this increase in volumes was caused by expiration pressure and rollover trades while nervous sentiments in cash market also forced investors to take refuge in derivatives market.
Nifty futures recorded huge volumes with a total of 39,481 contracts traded during the week. The open interest also rose consistently during the week which indicates rising investor interest in these contracts amid high degree of uncertainty. The cost of carry for Nifty futures set to expire in August ranged between 4 per cent and 11 per cent during the week. There were hardly any arbitrage opportunities during the week except for very few in the July expiry contracts. The volatility soared in both Nifty index as well as Nifty futures offering substantial gain potential for calculated bets.
The volumes in Nifty options rose, though lesser as compared to futures segment, with a total of 5,583 contracts traded during the week. More than one-third of the total contracts were traded on Friday. The implied volatility rose, especially in July series nearing expiration. As on Friday, the implied volatility in August expiry contracts stood at around 16.5 per cent for put options and 19 per cent for call options.
The outstanding positions have started building around 1010-1040 level for call options and 990-1010 level for put options. This coupled with the low put-call ratio reflects improved sentiments among the investors with regard to the future market movement.
Options On Individual Shares
As regards the volume, a total of 55,566 contracts were traded during the week, a rise of almost 19 per cent as compared to previous week. On an average, 13-14 contracts among the top 20 were call options while this number increased to 17 on Friday that reflects an increased interest to acquire ‘right to buy’ and is a positive sign.
Apart from the all time favourite stocks in this segment like Satyam, Reliance, Infosys, BPCL and Digital, significant trading interest was also witnessed in ACC, Ranbaxy, MTNL and VSNL during the week. The put-call ratio fluctuated sharply with stocks like M&M, MTNL, Sterlite, Tata Power and VSNL registering low put-call ratio coupled with the reasonable trading volume that reflects an uptrend among these stocks.
Futures On Individual Shares
Stock futures, the most happening segment, contributed to more than 70 per cent of the total turnover in the derivatives market during the week. The total number of contracts traded skyrocketed to 2,27,354 level, an increase of almost 43 per cent as compared to previous week, with trading taking place virtually in all the 30 shares in this segment. Top volume gainers included Dr Reddy’s, Digital, ACC, Sterlite Optical and Tata Power among others. The black sheep were BPCL, HPCL and Ranbaxy that registered a decline in trading volume.
Significant arbitrage opportunities were witnessed in Satyam, HPCL, BPCL, MTNL, VSNL, Sterlite, Reliance Petroleum, HLL and Ranbaxy as the cost of carry was either negative or in high positive territory. The trend in stock futures segment clearly reflected the bearish sentiments that prevailed in the cash market however, it offers profit making opportunities with limited risk potential.
Outlook For Future
Though most of the factors including the US market, drought fears and quarterly numbers have led to worsening of the sentiments on the Indian bourses. There is still a ray of hope for the value buyers and those who wish to make long-term commitment at this point in time.
The clue can be taken from the FIIs numbers who have been the net buyers during July. However, everyone is looking forward to the triggering point for deciding investment strategy.
What is on the anvil The coming week would witness more quarterly numbers from top-line companies including Reliance, Reliance Petroleum, SBI and L&T among others. The US market has also started reflecting signals of bottoming out which may help improving sentiments locally.
Further investors would look forward to the meeting of Cabinet Committee on Disinvestment, which may announce measures for expediting the disinvestment process. Overall, the outlook for coming week is cautiously optimistic with strong resistance for each point rise. Hence investors should stick to making use of stock futures which offers opportunities for both arbitrage and profitable investment at low cost.
— (The writer is faculty member at the Lal Bahadur Shastri Institute of Management, Delhi and can be contacted at email@example.com)