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High-stakes equity derivatives play has been weighing on India’s stock market. Over the past one week, the Sensex and the Nifty, two of the key stock indices, gave up more than 5 per cent of their gains from the record high levels that, according to experts, was on the back of unwinding of long positions ahead of the monthly derivatives expiry of the February series.
On Monday, equities fell the most in two months, ending lower for the fifth straight session. The Sensex fell steeply, by 1,145 points or 2.25 per cent, to close at 49,774. The Nifty dropped 306 points, or 2.04 per cent, to close at 14,675.
The futures position in the Nifty index, which is the largest traded derivative contract, had reached close to 1.40 crore units (each Nifty futures contract is of 75 units) during the month. On Monday, that position was down to 125.55 crore units, indicating an open interest of nearly ₹19,000 crore as of the day’s closing of the Nifty index.
The open interest for Bank Nifty index, the second most traded derivative contract, stood at around ₹6,400 crore, data showed. As on Monday, more than 18.06 lakh units of Bank Nifty futures were outstanding, which at the recent peak was around 20 lakh units.
According to market-watchers, it is this unwinding in Nifty and Bank Nifty futures that has brought pressure on the markets over the past week leading to over 5 per cent decline in the indices from their peak levels.
The monthly expiry falls this Thursday and the pace of correction could slow post that since outstanding positions in the index futures segment are nothing alarming to put further pressure on the markets, experts said.
Overall, the Sensex and Nifty had gained nearly 13 per cent in February. Of this, 4.74 per cent gains for Nifty and 5 per cent for Sensex came in a single trading session on the Budget day. More gains were made till February 16, and after the massive rise, a pull back was only to be expected, experts said. Similarly, the Bank Nifty index had gained 22.21 per cent during this month. Then, Bank Nifty corrected by 6.5 per cent.
“This year’s Budget rally has been historic and can be compared to that in 1997. In 1997 and 1999, there were strong post-Budget rallies and in both the years the markets took a breather before going higher. History repeats,” said Rohit Srivastava, chief strategist, IndiaCharts.
FPIs on buying spree
Despite the fall, foreign portfolio investors (FPIs) have remained net buyers of stocks worth ₹23,874 crore in the cash segment so far this month. In the index futures segment, they were net sellers for ₹657 crore, which reflects the unwinding of positions. In the futures segment, FPIs were net sellers for ₹1,493 crore.
Domestic institutional investors (DIIs) largely contributed to the fall in the markets this month. In the cash segment, the DIIs sold stocks worth ₹16,638 crore, data show.
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