Nifty: Aggressive bulls target new highs; rollover cost, too, soars with mood

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Mumbai: Traders carried forward bullish bets into the December series on Thursday – when November contracts expired – as expectations of fresh records on the Nifty over the next few weeks led to frenzied rolling over of positions. Analysts said the spike in rollover costs reflected in the optimistic mood as traders were willing to pay higher spreads to shift their bets to the new series.

The minutes of the US Federal Reserve that hinted at slower and smaller future rate hikes boosted sentiment on the last day of November contracts gaving a fillip to the market with the Sensex closing above 62,000 for the first time ever. Traders are also pinning hopes on the seasonality factor as December has mostly been a strong month for the Nifty.

In the past 23 years, Nifty has risen on 17 occasions in December. The index has returned 2.6% on an average in the last month of the calendar year, data showed.

The Nifty may test 18,900-levels next week, said Sriram Valyudhan, vice-president, alternative research, . Chandan , head – technical and derivatives research, , sees the Nifty touching 19,000 levels in the near-term. This implies a 2.2-3% upmove in the benchmark index, which closed at 18,484.10 on Thursday.

“The outlook remains positive and the aggression in rollover of long positions shows the confidence in the market,” said Valyudhan. “Foreign portfolio investors (FPIs) are now aiming for a breakout given the higher roll cost levels in both SGX Nifty and onshore Nifty futures.”

About 81% of the Nifty futures contracts were rolled over to December on Thursday against the three-month average of 78%, according to provisional data. The rollover in Bank Nifty futures as on Thursday was 88% compared to the three-month average of 80%.

“There is redemption from arbitrage schemes in favour of liquid and short-term debt because of which this product is squaring off its (arbitrage) positions,” said Chintan Haria, head- Product and Strategy, Mutual Funds

The cost to roll forward Nifty futures rose as high as 80 basis points compared with an average 30-50 bps in the last three months. Rolling forward in Nifty futures traded on the Singapore Exchange surged to as high as 91 bps. One basis point is 0.01%. When rollovers remain higher despite elevated costs, it is seen as bullishness.

“A couple of reasons drove the markets higher in the last half an hour,” said Taparia. “Bears got trapped as markets managed to hold on to gains aided by lower volatility and the short covering in IT stocks,

and twins.”

“We are in uncharted territory as the index is heading towards life time high zones and the highest Nifty call writing is directly visible at 20,000 strike in new series,” he said. This shows traders do not rule out a further surge in the Nifty but do not expect the index to cross 20,000.

“This indicates that markets do not have any intermediate levels at the beginning of new series which gives more scope for immediate swings and higher levels in coming days,” said Taparia. “FPI long-short ratio on index futures has risen from 15% to 60% in last two months, giving further impetus to the positive momentum in Indian equiy market.”


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