Budget uncertainty curbs open interest

As the government's Budget moves unfold, market participants are treading with caution. As a result, the open interest (OI) positions have taken a beating during June, especially during the last few weeks.

The Nifty June rollover stands at 54.86 per cent compared to 63.05 per cent in the May expiry and 74.03 per cent in April.

Generally, the Nifty futures OI tends to rise in the previous week of an uncertain event. Annual budget is usually announced in the last week of February, which is usually the rollover week.

But since the Budget this time will be announced almost a week past June, market players were expecting some significant accumulation of OI in the Nifty futures in the week ended July 3. But there was only a marginal addition of 1 million shares in the Nifty July series as per Thursday data.

Though experts expect not much volatility post-Budget, market players are awaiting some clarity to emerge on market movement after the Budget announcements. Consequently, OI has not increased this time and rollovers have declined.

"Market players would refrain from any significant bet until the announcement of the Budget," said chief investment officer of an international mutual fund.

"Market players are essentially booking profit before the Budget and trying to reduce exposure. They will first analyse the market reaction after the Budget and accordingly increase their OI. Investors may increase their exposure only after the Budget," said V K Sharma, head of research at Anagram Stock Broking.

At 54.86 per cent, the Nifty recorded a significantly lower rollover as compared to a three-month average of 68.9 per cent and a half-year average of 69.5 per cent on account of poor rollover from the options segment. Therefore, a very few position got rolled in the futures segment too.

But market players feel that low rollovers bodes well for the market.

"Historically, we have seen that low rollovers have proved to be a positive sign for the market and vice-versa. The cash figure from the institutional desk also indicates some positive upside in coming sessions. In the futures & options (F&O) space, foreign institutional investors (FIIs) have added a marginal OI of 23,236 contracts in index futures, which again do not have a significant impact on the total OI," said Anup Bagchi, executive director at ICICI Securities.

"On the Nifty, the largest put base currently stands at 4,200 with more than 3 million shares in OI. On the flip side, a similar addition is seen in the 4,700 and 4,800 call options, wherein the maximum call OI stands at 4,700 with 3 million shares. This indicates that the market is building a strong base at 4,200 with resistance at 4,700, suggesting an upside of 250-300 points in the Nifty from the current level," added Bagchi.

According to ICICI Securities, realty and media have observed significantly high rollovers with high OI compared to their 3 and 6 months averages, while telecom, auto, FMCG and pharma have recorded low rollovers compared to their 3 and 6 months averages.

Though low rollovers have been recorded in the telecom sector, these stocks have seen decent buying at lower levels, while auto stocks have seen significantly low OI rolled in the July series.

If the Budget signals positive for the sectors with low rollovers, markets may see formation of fresh long positions coupled with some short covering in them during July.