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Market players are bracing for more gut-wrenching roller-coaster action due to the unwinding of P-Notes. Monday’s spike in single stock futures was not a one-off, they reckon, and volatility could increase in the Sensex and Nifty in the next few weeks as foreign portfolio investors (FPIs) readjust their P-Notes positions following the SEBI ban.
The unwinding of positions in the index futures too need to be watched, according to market players. Index futures, comprising mainly of NSE’s Nifty and the Bank Nifty, have an open interest of about $3 billion, of which $2.4 billion were long positions, data from ProAlpha Capital showed. A long unwinding could cap an upward move in the markets.
“FPIs have been cutting their long positions in index futures with every market spike, and SEBI’s P-Note circular has given this a further impetus,” said Rohit Srivastava, Fund Manager, Sharekhan-BNP Paribas. “Gains in key indices could be capped from here on as shorts in single stock futures may have been largely unwound but long positions in index futures are yet to be squared.”
SEBI has not specified if it will allow FPIs to hold P-Note positions in the index futures segment. It has said that P-Notes in derivatives will be allowed only for hedging, defined as “taking a one-to-one position in only those derivatives, which have the same underlying as equity shares.” This leaves little scope for P-Notes in index futures.
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