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K.S. Badri Narayanan

THE addition of the Tata Consultancy Services stock to the derivative segment was the highlight of last week. The market gained on account of heavy short covering in August contracts, which expired on Thursday.

The November contracts, which were introduced for trading during last week, did not find takers. Roll over of positions into Nifty September futures was about 72 per cent.

Nifty outlook: Last week, we had predicted a downtrend for Nifty and suggested a cautious approach due to the imminent settlement of August-month contracts. Though the Nifty opened on a weak note, it jumped sharply towards the latter part of the week on account of heavy short covering in August futures. For the week ahead, we expect the market to remain range-bound. Indicators such as put/call ratio, lower volatility levels and low volumes point to the likelihood of the Nifty trading in a narrow band. This is also supported by the cost of straddle, which was Rs 70 as against Rs 100 for August contracts during July expiry.

Volatility view: The implied volatility of puts dropped marginally to 20 per cent from last week levels of 22 per cent and of calls to 13 per cent (16 per cent). The drop in volatility levels suggests a narrow movement for the market. The decline in puts' implied volatility indicates that the market may have only a limited downward bias.

Put/call ratio: The put/call ratio on volume basis for the Nifty slipped to 0.70 from last week levels of 1.02, while the same on open positions-wise improved marginally to 0.87 (0.82). This suggests that traders added puts' positions when the market started moving up last week to hedge their long positions. The drop in volume put/call ratio also reflected the low trading volumes that plagued the markets.

Basis: The basis between Nifty futures and the spot index widened. The Nifty September futures discount, which was about 4.2 points in the preceding week, increased to 8.6 points for near-month contracts. For the October contracts, the discount was even larger at 13.6 points. This points to a weak outlook for the Nifty, as traders do not appear to be willing to pay a premium for carrying forward their long positions.

Cost-of-carry: The cost-of-carry, which slipped sharply during the preceding week, however, recovered. This runs counter to signals provided by other key parameters. It still remains in the negative zone.

Index movement: The Nifty spot index moved in the range of 1617.25-1573.70 before settling the week at 1609, a gain of over 1 per cent over the previous week close.

Nifty futures: The September Nifty futures closed at 1600.40, a discount of 8.6 points to the Nifty spot close. Open positions improved sharply to 38,245 contracts, from the previous positions of 6,207 contracts, indicating a sharp roll over from August contracts.

The October Nifty futures closed at 1595.40 while open positions improved to 370 contracts from the previous week level of 125 contracts.

The August Nifty futures expired at 1610 while uncovered open positions stood at 15,120 contracts. However, the uncovered positions were lower as compared to the June and July-month expiration, where they were in excess of 20,000 contracts.

Stock futures: The most active contracts were Tata Motors, Tata Steel, Reliance, Infosys, Satyam Computer, ACC, Maruti and SBI.

* * For many contracts, the rollover of positions was smooth. For Hero Honda, ACC and oil contracts, open positions declined.

* The rollover was weak in the case of Gujarat Ambuja Cement and Grasim.

* Most counters witnessed a fall in implied volatility for both puts and calls.

* The put/call ratio for most contracts declined sharply on volume basis, while open positions put call ratio also declined albeit marginally.

BEL: The September futures on Bharat Electronics witnessed a sharp fluctuation on Friday. It touched a high of Rs 535.35 and a low of Rs 386 before settling at Rs 480.45. Against this, the underlying equity on BEL moved in a tighter band of Rs 480.05-495 in the spot market and closed at Rs 487.4. Open interest on BEL September contracts improved to 314 contracts. Options on BEL were not actively traded.

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