Open interest in equity futures at an all time high ahead of Union Budget 2015

MUMBAI: Outstanding positions in equity futures hit all-time highs on Thursday when January derivative contracts expired as traders rolled over bets to the February series ahead of the Union Budget.

Analysts said traders rolled over bullish positions in futures contracts of Nifty, banks, capital goods, oil and gas and power on hopes the government may announce pro-market measures in the Budget and the Reserve Bank of India may cut rates further in its meeting next week.

Bets on Nifty suggest market participants expect it to run up to 9400 before the Budget. The index ended at record high of 8952 points, up 38 points, on Thursday, but about 50 points below the psychologically crucial 9000 level. The Sensex gained 122 points, or 0.41%, to close at 29681 points.

"If Nifty breaches 9000, the index may continue to 9300-9400 levels. We expect Nifty to hit the 9000 mark in the next couple of days, but the index may find strong resistance around these levels because traders may opt to book some profits," said Hemant Nahata, derivatives analyst at IIFL.
Open interest, or outstanding positions, in all Nifty and stock contracts was Rs 90,400 crore against Rs 76,900 crore at the start of the January series. The market-wide rollover stands at 83%, compared with average rollover of 78% in the last three series. Nifty rollover was also higher at 77% compared with the average rollover of 69% in the last three series. Nifty will start the February series with an open interest of Rs 22,700 crore.

"Nifty futures open interest has hit a one-year high and Bank Nifty open interest is at an all-time high. Traders have built aggressive positions in the market on expectations that the government may announce radical reforms in the Union Budget," said Chandan Taparia, derivative analyst at Anand Rathi Securities.

FIIs extended their buying spree in India, pumping Rs 1,723 crore into stocks on Thursday. They have bought equities worth over Rs 11,000 crore so far this month. However, domestic institutional investors (DIIs) remained net sellers worth Rs 1,680 crore, according to provisional data from the exchanges.

India VIX, or the volatility index — a measure of traders’ expectations of near-term risks in the market — closed at 19.43% on Thursday. This level was last seen in June 2014. Analysts expect the volatility index to increase to 23-24% in the first half of February. "We expect market volatility to increase in February in the run-up to the Budget," said Jitendra Panda, managing director and CEO, at Peerless Securities. "One may buy Nifty 9200 strike call option and also buy Nifty 8700 strike put option; the trade becomes profitable with increase in volatility."

Yogesh Radke, head of quantitative research at Edelweiss Securities, is cautious. "Going into the February series, we would advise caution. The market awaits big-ticket issuances from Coal India, Tata Motors, HDFC Bank, and SBI. The fresh supply of paper is bound to put pressure in the near term," he said.