Rollovers low as traders turn cautious

Worst market fall on derivatives expiry day

The expiry day for March series derivative contracts saw heavy unwinding of long positions by nervous traders on Thursday. The benchmark indices recorded their worst ever fall, in terms of points, on an F&O ( future & options) expiry day.

Stock markets tumbled over two per cent on Thursday as risk-averse traders abstained from rolling over their March series long positions in index futures into the April series. Market participants said foreign investors were seen squaring off their long positions created on index futures due to the sharp run-up in the market and global fears over the possibility of a US interest rate rise.

“Foreign investors have been unwinding their long positions on the Nifty but they are not yet introducing short positions, which shows foreign institutional investors (FIIs) are not entirely negative on the Indian market. The Nifty rollover percentage and open interest positions were lower than in the last series,” said Siddharth Bhamre, head of derivatives, Angel Broking. Analysts said that the Indian markets could remain under pressure in the short term, with support levels at 8,200 Nifty. The upside to the Nifty is capped at 8,600, they said.

The Nifty rollovers for the April series stood at 77 per cent, compared to a multi-year high of around 83 per cent seen last month. The open interest for the Nifty was 22.75 million, lower than the 24 million units of open interest seen at the end of the February series. The Nifty open interest has been falling for the past two months. Besides, the March-end closing of books weighed heavily on the minds of proprietary traders who chose to square off positions and close their books to report profits further sharpening the decline in the market. According to industry officials, in the last one-year period prop book traders had become much more active because of the upward trajectory of the markets.

“Prop book and arbitrage traders have been reducing their long positions and not rolling them over because of the March year-end closure of books. The weightage of prop books within the retail basket has grown by about 10-12 per cent in the last one year, which is why the unwinding of positions by them was felt so sharply,” said Manoj Muralidharan, derivatives analyst, Religare Securities.

According to industry estimates, retail participation in derivatives has risen to about 29 per cent, up from 16 per cent about a year back.

Further, the Nifty premium also shot up because of the sharp selling in cash Nifty but no rollovers in the Nifty futures.

Brokers said traders were becoming increasingly nervous about the banking sector and had been introducing short positions on both the Bank Nifty and individual banking stocks.

The rollover in the Bank Nifty futures into the April series was about 68 per cent.

Particularly troubling was the negative outlook on private sector names such as ICICI Bank, which has seen a sharp rise in short positions, and Axis Bank. Analysts said the sharp rise in banking stocks, weak corporate earning numbers and rising asset quality concerns had turned the outlook pessimistic for the sector.