Nifty futures OI at lowest since Nov 2023; what does this indicate?

Derivatives market update: The current low open interest in Nifty implies signs of profit booking rather than fresh short position, believes James Kunnel, Derivatives Analyst at Asit C Mehta.

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The Nifty futures started the November series with record low rollovers amid the recent market sell-off. The Nifty 50 index had plunged nearly 8 per cent in the October series as foreign investors turned aggressive sellers mid-month onwards.

 

The Nifty Open Interest (OI) data shows that the NSE index had started the October series with 171 lakh OI which was the highest-ever along with high rollovers at 79 per cent, said James Kunnel, Derivatives Analyst - Institutional Equities at Asit C Mehta Investment Intermediates in a note.

 

Data from NSE shows, that foreign investors (FIIs) were net sellers in Nifty futures for 17 out of the 23 trading sessions in the October series. As a result of which, FIIs OI in Nifty futures from a high of 4.59 lakh contracts declined to 92,232 contracts at the end of the October series. This marks a sharp 80 per cent reduction in OI. FIIs overall OI across index futures was down by nearly 52 per cent in the same comparable period. 

 

James believes that FIIs pruned positions and relocated their investments owing to global factors like the China Stimulus Package, the US elections along with domestic factors like the upcoming changes in the derivative markets.

 

Further, data shows that FIIs long-short ratio in index futures stood a bullish 4.4:1 at the start of the October series - meaning FIIs held more than 4 long positions in index futures as against every short bet.

 

At the end of the October series, FIIs long-short ratio had plunged to 0.3:1 - implying nearly 3 short trades for every long position in index futures. 

 

During the October series, we witnessed a selling spree from the FIIs as they reduced their Net Index Futures Long/Short ratio from 80 per cent longs to just 22 per cent index longs as of October 31,  2024. The ratio usually finds support near 20-30 levels while resistance usually lies near 70-80 levels, James explained.

 

While rollover figures at 73 per cent are not uncommon, the current OI at 115 lakh shares is lowest starting Open Interest in Nifty since November 2023. This implies signs of profit booking rather than fresh short positions, James added. 

The Nifty futures, in early days of the November series, has witnessed high volatility and is seen trading around the 24,200 levels where it started the series.