Liquidity level curls down

Anup Menon

OVERALL Trends: The underlying trend in the cash market during the course of the week was positive.

On a week on week basis the benchmark BSE Sensex gained close to 4 per cent to close at 4,194.5 points. The trends at the National Stock Exchange mirrored that at the BSE, with the S&P CNX Nifty closing the week up by around 3.3 per cent at 1329.10 points. The futures markets continued to track the cash markets closely. For instance the near term January Sensex contract ended the week up by around 4.1 per cent at 4202. The contract with the same maturity on the Nifty ended the week up by around 3.5 per cent at 1330.6 points.

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Trading statistics: The overall liquidity levels in both the Sensex and Nifty contracts declined during the week. Volumes in the Sensex contracts dropped by around 40 per cent to 1955 contracts as compared to around 3202 contracts traded the week before. Similarly volumes in the Nifty contracts declined by around 28 per cent to 3,266 contracts from around 4548 contracts traded the week before.

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Nifty January: The Nifty January contract will reach its maturity date in the following week. Volumes in the contract dropped by around 31 per cent to 2454 contracts as compared to 3536 contracts traded the week before. The level of open interest in the contract was also high at 1851 contracts. If as recommended in the previous week, investors had taken a long position on the contract they could have closed their position profitably.

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The valuation of the contract, based on the last day of trading, provides very little scope for arbitrage. The implied cost of carry-on-the-contract works out to around 7 per cent. Fresh positions need not be considered at present levels.

Nifty February: Volumes in the Nifty February contract dropped during the week. Total traded volumes for the week was around 771 contracts, down by 19 per cent as compared to the previous week. Investors with a long position in the previous week could have closed their position profitably during the course of the week.

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The valuation of the contract, based on the last day of trading, provides no scope for arbitrage. The implied cost of carry-for-the-contract works out to around 6 per cent. Investors need not consider taking fresh positions at current levels.

Nifty March: The Nifty March contract will move into the two-month trading range shortly. This should help improve liquidity in the contract to some extent. Total traded volumes stood at around 41 contracts as compared to 60 contracts traded the week before. The implied cost of carry based on the last day of trading works out to around 5 per cent. However given the lack of liquidity, fresh long positions need not be initiated at current levels.

Sensex January: Volumes in the Sensex January contract dropped considerably during the week. Total traded volumes was around 1766 contracts as compared to 3184 contracts traded the week before. Long positions initiated in the previous week could have been closed profitably during the week.

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The valuation of the contract based on the last day of trading provides very little scope for arbitrage. The implied cost of carry-on-the-contract works out to around 11 per cent. Fresh positions need not be initiated at present levels.

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Sensex February: The Sensex February contract was the only one that bucked the trend in terms of volumes. Total traded volumes increased from around 18 contracts to around 189 contracts traded during the week. The implied cost of carry, based on the last day of trading, works out to around 2 per cent. Fresh long positions can be initiated at present levels.

Sensex March: The Sensex March, which has the longest time, to maturity found no takers during the course of the week.