FIIs roll over bullish Nifty bets to June series

Rollover in Nifty futures to June was at about 57% vs 60% during the previous expiry

Foreign institutional investors (FIIs) carried forward their bullish equity derivatives bets to the June series on Thursday when the May contracts expired. Analysts said hopes of continued flows into Indian equities in the weeks ahead, which keep the prospect of benchmark indices hitting record levels, prompted FIIs to roll over their long positions to the June series.

The rollover in the Nifty futures to June was at about 57 per cent, according to provisional data, compared to 60 per cent during the previous expiry. Though the extent of rollover in Nifty contracts this time was lower in percentage, the open interest - the number of positions not settled at the end of the day - in absolute numbers was higher at 18.5 million units on Thursday. On the expiry day of the April contracts, the open interest was about 14.5 million units, said analysts.

“The sizeable jump in positions in Nifty futures this time is because of the long rollover by FIIs,” said Siddarth Bhamre, head-derivatives, Angel Broking.

The market-wide rollover across contracts to the June series was about 80 per cent, higher than the previous expiries. In the Bank Nifty futures, the rollover to June at 67 per cent was lower than the previous months, as traders let most of their short positions expire. The rollover in futures contracts of private banks, non-banking finance companies and four-wheelers from May to June was subdued, compared to the previous expiry.

Public sector banks and capital goods contracts saw higher rollover, said analysts.“Traders have cut long positions in stock contracts that moved in May, while they have carried forward (to June) those contracts that have underperformed,” said Amit Gupta, head-derivatives, ICICIdirect. Analysts said many savvy traders did not square off their arbitrage positions — a trading strategy involving shares and stock futures — in the May series on expiry. In this strategy, traders buy a stock and sell its stock futures simultaneously to take advantage of the difference in values. In theory, their values converge by the end of every monthly series.

Analysts said many stocks were trading at a significant discount to the futures because companies have been announcing dividends along with their results. When a company announces a dividend, traders prefer to buy the stock rather than its futures contracts. This is because holding futures do not earn dividends unlike stocks. After a stock goes ex-dividend, the gap between the stock and the futures contracts narrows.

“Many of the traders held on to the stocks because they wanted to pocket the dividend. Several stocks are going ex-dividend in June,” said Gupta.