Speed bump ahead? F&O rollover data shows traders wary of pricey equity valuations
By Santanu Chakraborty
Traders are paying less than average to roll futures contracts tied to an index of India’s top 50 companies after the recent rally pushed equity valuations to a six-year high.
The roll cost, or the price to replace March futures with April securities, was 39 basis points for the NSE Nifty 50 Index contracts at 12:08 pm in Mumbai. That compares with the mean of 47 basis points one day before the past six expirations, data compiled by Bloomberg show.
“Investors are waiting for high valuations to cool off before allocating fresh capital,” said Chandan Taparia, head of derivatives at Motilal Oswal Financial Services Ltd. in Mumbai. “The aggression of bulls is missing even as the market trades near an all-time high.”
The Nifty reached a record about two weeks ago after Prime Minister Narendra Modi’s resounding victory in state elections was taken as a referendum on his economic policies. The rally drove Indian shares above Japanese stocks as the most expensive in the region and sent the gauge’s estimated price-earnings ratio to the highest since 2010. The surge has since shown signs of fatigue, with the Nifty closing lower in four of the past seven days.
Foreign investors, too, have lightened their positions. They sold a net 10,963 contracts worth 8 billion rupees ($123 million) tied to the Nifty and NSE Nifty Bank Index futures over the two sessions through Monday, the last day for which data is available. The sale is the most by value for such a period since Feb. 20, the data show.
Global funds returned to Indian stocks in February after a four-month selloff amid signs that Asia’s third-largest economy is recovering from the cash ban and as Modi’s victory in state polls improved prospects for continuation of his reforms agenda. Their net-long open interest in index futures has tripled since the end of December to 217,293 contracts, data compiled by Bloomberg show.
“Recent selling by foreigners in the futures market indicates that there is limited upside to market,” said Taparia. “They are booking partial profits.”
Traders are paying less than average to roll futures contracts tied to an index of India’s top 50 companies after the recent rally pushed equity valuations to a six-year high.
The roll cost, or the price to replace March futures with April securities, was 39 basis points for the NSE Nifty 50 Index contracts at 12:08 pm in Mumbai. That compares with the mean of 47 basis points one day before the past six expirations, data compiled by Bloomberg show.
“Investors are waiting for high valuations to cool off before allocating fresh capital,” said Chandan Taparia, head of derivatives at Motilal Oswal Financial Services Ltd. in Mumbai. “The aggression of bulls is missing even as the market trades near an all-time high.”
The Nifty reached a record about two weeks ago after Prime Minister Narendra Modi’s resounding victory in state elections was taken as a referendum on his economic policies. The rally drove Indian shares above Japanese stocks as the most expensive in the region and sent the gauge’s estimated price-earnings ratio to the highest since 2010. The surge has since shown signs of fatigue, with the Nifty closing lower in four of the past seven days.
Foreign investors, too, have lightened their positions. They sold a net 10,963 contracts worth 8 billion rupees ($123 million) tied to the Nifty and NSE Nifty Bank Index futures over the two sessions through Monday, the last day for which data is available. The sale is the most by value for such a period since Feb. 20, the data show.
Global funds returned to Indian stocks in February after a four-month selloff amid signs that Asia’s third-largest economy is recovering from the cash ban and as Modi’s victory in state polls improved prospects for continuation of his reforms agenda. Their net-long open interest in index futures has tripled since the end of December to 217,293 contracts, data compiled by Bloomberg show.
“Recent selling by foreigners in the futures market indicates that there is limited upside to market,” said Taparia. “They are booking partial profits.”
