• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

C. Raja Rajeshwari

PUTTING up a strong showing for the second week in a row, the Nifty gained 4.7 per cent week-on-week despite a lacklustre performance on Wednesday. There was a surge in trading volumes due the rollover of positions to the January 2004 contract. This is in line with end-of-the-month trends as the near-month contracts (December) approach their expiration date.

What lies ahead: Sentiment indicators such as call implied volatility, put-call volume ratio point to a bullish outlook for the Nifty and most frontline stocks in the week ahead. The following factors, however, could soften the bullish outlook:

* Weak sentiment from the put-call open interest ratio;

* Expiry of December contracts on Wednesday;

* The implied volatility (IV) of the Nifty puts firmed up to 23 per cent and

* the closure of stock exchanges on Thursday for Christmas

Sentiment indicators: The implied cost-of-carry slipped further into negative territory. This, however, does not mean weak trends as the futures market still play a limited role in influencing spot prices. On many occasions in the past, negative cost-of carry has been followed by a firm undertone in the spot market.

In the options market for the Nifty, the put-call volumes ratio was 0.59 (for every 10 calls traded, there were 6 puts). This is a sizable decline from the levels of about 1.1 that prevailed over the past two weeks when the trading was skewed towards puts. The reduction in the level of puts is a bullish indicator.

The put-call open interest ratio for the Nifty at 1.26, however, clouds the outlook to an extent. That the ratio has declined can be viewed as an encouraging pointer, in absolute terms, it is still at a level that has to be considered as providing a bearish pointer. This suggests weakness close to the contract expiration day though it may not affect the overall bullish outlook.

In the equity options market, the put-call open interest ratio of Digital GlobalSoft has risen to 1.45. The spot price declined marginally on Friday. Going forward, there may be weakness in the stock. There are no clear signals regarding the price outlook from the put-call open interest ratio of Infosys, Tata Steel, Tata Motors, HPCL and BPCL. This ratio for these stocks is stuck in an indecisive zone of 0.50-0.60.

Volatility view: The implied volatility in the Nifty calls declined with the uptrend in the index. The IV of the Nifty puts, however, firmed up to 23 per cent, which also blunts the positive outlook. The IV of the put firm at this level indicates high levels of premium charged by put writers for the risk undertaken.

Contracts on Nifty: The trading interest has shifted to the January contracts. The implied cost-of-carry for the January Nifty futures is in the positive territory. In index options, the January 1760 call (in-the-money) and December 1760 put (out-of-the-money) were traded actively.

Oil stocks: Expectations on interim dividend and approval for ONGC, Gail and Indian Oil to sell cross holdings led to heightened trading interest in the contracts on oil stocks. The upward trend in BPCL and HPCL reversed on Friday. Open interest in the futures of these oil stocks and prices of these contracts declined towards the end of the week. The open interest of BPCL December contracts declined by 18 per cent and that of HPCL by 5.9 per cent. This decline in open interest and prices signifies that profitable long positions have been closed out with market players taking advantage of the spurt in spot prices.

In the case of IOC, the open interest of the December futures declined by 6.7 per cent. Bucking the trend among other futures on oil futures, the December IOC futures appreciated by Rs 8. The increase in the price coupled with a decline in the open interest indicates that short positions, which were initiated at the beginning of the week when the stock was on a downtrend, were being closed out. In addition, the build-up in the open interest of the January contracts on IOC in the past two days is significant, as the next month contracts on IOC are not usually heavily traded before the expiry of the near month contracts.

Arvind Mills: The IV of Arvind Mills' call has risen to 65 per cent. The IV of puts has further declined from levels of about 50 per cent of the previous week to 45 per cent. This increase in call IV vis-à-vis the decrease in put IV indicates a positive bias for the stock. Exposures can be contemplated in the calls after the expiry of near-month contracts.

Other contracts: The contracts on Tata Steel and Tata Motors had substantial rollover this week. Apart from these, contracts on Shipping Corporation, Reliance, GAIL and Canara Bank also evinced rollover. The January contracts on MTNL were also active. This is significant, as in the past, trading interest on MTNL contract picks up significantly only after the expiry of the near month contracts.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Yahoo! offers online money transfer

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line