Traders refrain from short rollovers to February

Nifty rollover below 3-month average hopes of market strengthening in run-up to Budget

Fewer derivative positions were carried forward to the February series when the January contracts expired on Thursday, as traders and investors did not roll over short positions.

Analysts said expectations that the market might strengthen in the period up to the Union Budget prompted traders to square off their bearish bets. The rollover in Nifty contracts to February was 64 per cent, below the three-month average. In Bank Nifty contracts, it was roughly 67 per cent, below the six-month average.

“Bears might not have rolled over their shorts positions, hinting the current momentum may continue,” said Shashank Mehta, derivative strategist, Shah Investor’s Home.

Benchmark indices ended weak but posted 2.4 per cent gains in January, aided by foreign institutional inflows of $3.9 billion during the month. In 2012, these investors poured about $25 billion into Indian equities.

The Sensex fell 110.02 points or 0.55 per cent, to close at 19,894.98. The Nifty declined 21 points or 0.35 per cent to end at 6,034.75. Foreign institutions net-bought shares worth Rs 959 crore on Thursday, while their domestic counterparts sold Rs 863.6 crore, according to provisional data.

Brokers said traders rolled over bullish positions in cement and automobiles, while they were forced to carry forward their short positions in public sector bank futures. Analysts said traders who had created short positions in these futures were caught on the wrong foot after Punjab National Bank’s third quarter earnings exceeded estimates.

“PNB results were surprisingly strong, with healthy margin performance and stable asset quality. With the Street being pessimistic going into the results, the stock posted a substantial gain,” said Amar Ambani, head of research, IIFL. “The investment sentiment for the sector was also ably supported by robust performance by ICICI Bank and asset quality improvement reported by United Bank of India and Allahabad Bank.”

Analysts said Bharat Heavy Electricals Ltd saw a rollover of long positions to the February series, as the stock rose 2.4 per cent to Rs 227.70. “The rolls in BHEL were interesting and skewed towards the long side. A decisive close above Rs 231 will catapult the counter to Rs 250 levels,” said Mehta.

SETTING THE MOOD Rollover (%) at the end of series in the past three months
Indices	Nov ’12	Dec ’12	Jan ’13
Nifty*	72	62	64
Bank Nifty*	68	71	67
Stocks
M&M*	75	75	64
Axis*	63	71	79
BoB*	79	66	63
ICICI*	71	72	76
BHEL*	82	71	86
ACC*	81	71	78
Ambuja*	76	79	67
Infosys*	76	73	56
Tata Steel#	88	81	78
SAIL#	89	79	84
JSW#	89	81	80
Nature of rollover: * Long positions, # Short positions Source: Shah Investor Home

Traders rolled over fewer contracts in Infosys to February because they’d allowed most of the short positions to expire in the January series itself. Infosys shares ended marginally lower at Rs 2,788.75. “We believe the stock is heading towards Rs 2,900, where concentration in calls is the highest,” said Mehta.

Analysts said the lower position build-up gives room for traders to build positions ahead of the Union Budget, due for presentation on February 28. As the event approaches, traders are likely to mount bets on specific stock futures that could see some sharp moves.

“If the open positions had been heavy during the start of the series, it would have given very little room for traders. Also, it would have made the market more vulnerable to any sharp declines in the absence of sizable short positions,” said the head of institutional derivatives of a Mumbai-based broking firm.