Movement remain range-bound

Anup Menon

OVERALL Trends: Trading in the cash market continued to remain range-bound with a marginal upward bias. The rupee continued to remain stable during the week which helped the market to move into a positive territory. On a week-on-week basis, the BSE Sensex has moved up by around 0.8 per cent. Moving in tandem with the Sensex, the S&P CNX Nifty has also gained close to 0.9 per cent in the same period.

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The movement in the futures prices mirrored that of the cash market, albeit to a lesser extent. The Sensex September maturity moved up by around 0.7 per cent on a week-to-week basis. The contract with a similar maturity on the Nifty ended the week up by around 0.5 per cent.

Trading statistics: Volumes in the BSE and NSE dropped during the week. The August contracts matured during the week. Activity in the longer end contracts were on the higher end. Overall volumes in the Sensex contracts declined to 1,023 contracts as against 1,713 contracts recorded in the previous week.

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Similarly, total volumes in the Nifty also declined by around 40 per cent to 575 contracts as compared to 964 contracts registered in the previous week.

Nifty August: The Nifty August contract matured during the week. The contract traded very close to the fair value of the contract. On the settlement date, the spread between the fair value of the contract and the actual futures price works out to a negative 3.2 index points. The scope for arbitrage during the week was virtually non-existent.

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Nifty September: The Nifty September contract has moved into the one-month maturity range during the course of the week. Among the three contracts, the highest volumes were recorded in the September contract with 288 contracts being traded.

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The valuation of the contract seems to provide a window of opportunity for investors. The implied cost of carry on the contract based on the week's closing price works out to around 2 per cent. Investors can consider taking a long position in the contract.

Nifty October: The Nifty October contract moved into the two-month range. Volumes were on the lower end with close to six contracts traded during the week as compared to 18 contracts traded in the previous week. The valuation of the contract may provide some opportunity for institutional investors. The implied cost of carry based on the last traded futures price works out to around 5.41 per cent. Investors with a penchant for risk can consider taking a long position in the stock.

Sensex August: The Sensex August contract matured during the week. The valuation of the contract during the week provided very little scope for arbitrage. On the settlement day, the difference between the fair value of the contract and actual futures price was around 6 points.

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Sensex September contract: The Sensex September contract moved into the one-month trading range. Close to 758 contracts were traded during the week. The valuation of the contract based on the last day of trading indicates that there exists some opportunity for arbitrage. The implied cost of carry for the contract works out to around 3.35 per cent.

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Investors can consider taking a long position in the contract at present levels. The Sensex October contract was never traded during the week. Given the inherent illiquidity, the contract need not be considered for investment.