November series worst for market since August 2013

MUMBAI: The November derivatives series was the most turbulent one since August 2013 as heightened expectations of US Federal Reserve raising rates in December and worries about contraction in corporate earnings took a toll on sentiment.

As foreign investors continued to dump shares with the rupee tumbling to a record low against the dollar on Thursday ahead of the Fed meeting outcome on December 14, fewer positions were rolled to the December series. The roll cost dropped sharply, indicating that the cautious sentiment is likely to continue. The open interest in the Nifty December futures on Thursday was Rs 12,691 crore, the lowest since the June 2015 series, which began with an open interest of Rs 12,292 crore.

About 62% positions were rolled over to the Nifty December futures, lower than the average of 72% in the last three derivatives series. Market wide rollovers were in line with the three-month average at 71%. Market-wide futures open interest on Thursday was Rs 77,589 crore compared to Rs 93,612 crore on the expiry day of the October contracts. On Thursday, the Nifty ended down 0.8% at 7965.50.

“The roll cost was low at 48-50 basis points compared to an average of 60-65 basis points indicating that positions have been rolled over but with caution,” said Yogesh Radke, head of quantitative research at Edelweiss Securities.

Nifty lost 7.5% and Sensex lost 7.4% in the November series.

The December series is the first series since March which is beginning with foreign investors being net short in the index futures, said Hemant Nahata, derivatives analyst at IIFL Wealth. In terms of number of contracts, FPIs are net short 3,086 contracts in the index futures.

FPIs have been net sellers in 13 out of the 17 trading sessions in November series. They dumped shares worth about Rs 15,700 crore during the November series.

Some derivative analysts see a bounce back in the coming sessions but said it is unlikely to sustain.The highest concentration among put options is at 8000 strike which holds nearly 56 lakh contracts in open interest. Among calls, 8000 strike holds highest open interest followed by 8300 strike.

“Nifty may head to 7500 in the near term given that global emerging markets are still witnessing selling, dollar index is rising and the Indian currency is depreciating. The 200-DMA (day moving average) of 8150 is likely to act as a stiff resistance," said Radke.

Any gains are unlikely to sustain at lease till the Fed meeting outcome is clear, others said.

"This pressure is likely to continue given the low roll cost and the Fed event ahead. I won't be surprised if Nifty heads to 7750," said Tushar Mahajan, head of derivatives at Nomura.

SECTORS RADAR
The real estate, automobile, and consumption-related companies, which are likely to bear the worst brunt of the demonetisation move were also the biggest casualties in the November series. The Nifty Realty, Auto and India Consumption index lost 22.5%, 11.7% and 10.2% respectively. Nifty IT and Pharma indices were less hit, falling 4% and 6.7% respectively. Only Nifty PSU Bank and Metal index ended positive for the series, up 1.8% and 3.5%.“Metals can continue doing well as commodity prices are moving up, and activity there was more on the long side. Stocks like Hindalco and Hind Zinc will continue to ride on this strength,” said Ashish Chaturmohta, head of technicals and derivatives at Sanctum Wealth Management.