As BSE Sensex inches closer to its all-time high of 12,612, the markets are giving all the signals of nervousness.
MUMBAI: As the Bombay Stock Exchange Sensex inches closer to its all-time high of 12,612 - it closed at 12,237 on Friday - the markets are giving all the signals of nervousness. Positions in the futures and options market point to a large directional move in the expiry week. Three factors, in particular, are worth singling out: one is the build-up in open interest; next is the nine consecutive weeks of weekly gains in the broad market index amidst weakness in global markets; and the third is the large volume of selling by foreign institutional investors (FIIs) in the derivative markets.
There has been a build-up of open interest with Nifty index futures seeing an increase of 7% and single-stock futures of Reliance and Tata Motors of 20% week-on-week. Nifty index futures have gained in open interest by 27% over the last three weeks. Reliance and Tata Motors have seen an open interest build-up of around 35% over the last two weeks. Rollovers have commenced in Nifty index futures and single-stock futures with September series contracts being carried forward into October contracts. The open interest increase has been accompanied by price gains of 2% in Nifty index futures week-on-week, the ninth consecutive run of weekly gains. This is against three weeks of consecutive losses in Asian stocks and a week-on-week loss in the US and European stocks.
FIIs have been net sellers in single-stock futures to the tune of Rs 447 crore last week. Over the last three weeks they have sold Rs 2,044 crore in single-stock futures and Rs 2,353 crore in index futures. The last day of last week saw them selling Rs 1,135 crore in index futures.
Against this backdrop, the directional move this week is expected to be large. Technical opinion is that if the markets continue their upward march, short-covering could take it up sharply. If the markets move down, short-sellers will move in for the kill, pushing the market down harder.
The overnight news globally has been weak, with the US, Asia and Europe closing down on concerns of growth in the US. On the other hand, the market has seen the
Securities Exchange Board of India increase positions limits in the derivatives markets, giving access to higher leverage to players. Falling oil prices and the impending festival season have also boosted sentiments. The Indian rupee is gaining against the US dollar, giving scope for further currency plays for FIIs through a cash-futures arbitrage.
The negatives and positives are evenly matched. The best way to play this move may be to buy on a rising trend and sell on a falling trend. Handsome gains can be made for those who can make the right calls.
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