Traders are paying less than average to roll futures contracts tied to an index of India’s top 50 companies after the recent rally pushed equity valuations to a six-year high.
The roll cost, or the price to replace March futures with April securities, was 40 basis points for the NSE Nifty 50 Index contracts on Tuesday. That compares with the average of 47 basis points two days before the past six expirations, data compiled by Bloomberg show.
“Investors are waiting for high valuations to cool off before allocating fresh capital,” said Chandan Taparia, head of derivatives at Motilal Oswal Financial Services Ltd. in Mumbai. “The aggression of bulls is missing even as the market trades near an all-time high.”
The Nifty advanced to a record about two weeks ago after Prime Minister Narendra Modi’s resounding victory in state elections was taken as a referendum on his economic policies. The rally drove Indian shares above Japanese stocks as the most expensive in the region and sent the gauge’s estimated price-earnings ratio to the highest since 2010. The surge has since shown signs of fatigue, with the Nifty closing lower in four of the past seven days.
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Foreign investors, too, have lightened their positions. They sold a net 8 billion rupees ($123 million) of Nifty and NSE Nifty Bank Index futures over the two sessions through Monday, the last day for which data is available. That’s the most for such a period since Feb. 20, data compiled by Bloomberg show. Their total net-long positions on the two indexes reached 223,540 futures on Thursday, the highest since September.
“Recent selling by foreigners in the futures market indicates that there is limited upside to market,” said Taparia. “They are booking partial profits.”