Financial Daily from THE HINDU group of publications
Sunday, May 23, 2004
Financial Daily from THE HINDU group of publications Sunday, May 23, 2004 |
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Investment World
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Derivatives Markets Volatile condition may remain K.S. Badri Narayanan
THE fear of unstable government coupled with high volatility left many market participants stranded on the NSE during the week. The average daily turnover at the futures and options segment on the NSE dropped viciously to Rs 7,628 crore against the previous week average daily turnover of Rs 11,341 crore and that too ahead of the settlement week for May contracts. Normally, there would be frenzied activities at the F&O segment ahead of the settlement week. In fact, turnover on the black Monday, when the Sensex witnessed a historic fall, was a mere Rs 4,900 crore (due to halt of trading by about three hours). Historic week: This week marked a record on the history book, as the NSE S&P CNX Nifty witnessed violent swings on either side. On Monday, the Nifty touched a low of 1292.20 from the day's high of 1583.30 and settled at 1388.75 and in the process shed a whopping 12 per cent. The next day, the market moved in the opposite direction and gained 8.29 per cent to close at 1503.95. During the week, the Nifty moved in a very wide rage of about 290 points between the high of 1583.3 and a low of 1292.20 points. Index futures: With volatile twists and turns, the Nifty May futures closed the week at 1,549.55, still a discount of 10.65 points over the spot close of 1,560.20. However, the gap between the May futures and the spot narrowed down considerably as only four days are left for the settlement of these contracts. Much cannot be read into this, as the price will converge towards the spot rate when the contract approaches expiry. Open interest positions slipped to 42,710 contracts from the previous week position of 73,432 contracts. However, the Nifty June futures closed the week at 1530.20, in backwardation by 30 points to the spot close. The gap between the futures and the spot price was even bigger in the case of July contracts, which closed the week at 1527. Open interest positions for June contracts improved to 14,806 contracts from the previous week positions of 3,399 contracts. This means the rollover of positions from May contracts to June series was on the lower side. The huge backwardation and the low churning ratio of open interest positions suggest negative bias for the market. Stock futures: Tata Steel was the most active contract. Apart from it, contracts on Reliance, SBI, Maruti, Tata Motors, L&T, Tata Power and ONGC were also actively traded.
The backwardation in futures contracts coupled with low churning ratio to June series indicate that market is likely to remain under pressure. FIIs trends: Foreign institutional investors have adopted a contrarian strategy in cash and futures markets. While they were net sellers to the tune of Rs 447 crore in the cash market (on all four days) during the week, FIIs were net buyers to the tune of Rs 1,343 crore in the derivative segment. This indicates that FIIs have rolled over their positions to the June series. It was this rollover that caused June futures to go into a steep discount. Implied volatility and put-call ratio: Implied volatility for most counters (both call and puts) was quite high; PCR for Nifty and SBI was on the higher side, while it was low for Reliance. The higher implied volatility and PCR for Nifty indicate nervousness of the market. Traders are advised to tread cautiously at least till the May contracts get expired
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