Deviant trend in Sensex, Nifty contracts

Anup Menon

OVERALL Trends: The trends in the cash market were positive for a significant part of the previous week.

On a week-on-week basis the BSE Sensex gained close to 3.2 per cent to close at 4,330.2 points. The trends in the National Stock Exchange mirrored that at the BSE, with the S&P CNX Nifty closing the week up by around 3.1 per cent at 1370.1 points. Trends in the futures market were similar to that of the spot market. The near term January contract at the BSE closed the week up by around 3 per cent at 4,330.2 points. The contract with the same maturity on the Nifty ended the week up by around 2.8 per cent at 1,368.3 points.

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Trading statistics: The overall liquidity levels in both the Sensex and Nifty contracts displayed divergent trends. Overall volumes in the Sensex contracts improved by around 62 per cent to 3,168 contracts as compared to 1,955 contracts traded the week before. In contrast volumes in the Nifty contracts declined by around 37 per cent to 2,051 contracts as compared to 3,266 contracts traded the week before.

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Nifty January: The Nifty January contract matured during the week. Volumes in the contract dropped by around 62 per cent to 940 contracts as compared to 2,454 contracts traded the week before. As indicated in the previous week, the valuation of the contract during the course of the week provided very little scope for arbitrage.

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Nifty February: The Nifty February contract has moved into the one month trading range. Volumes in the contract is likely to see an improvement in the near future. Volumes during the week improved by around 37 per cent to 1,056 contracts as compared to 771 contracts traded the week before. The valuation of the contract based on the last day of trading provides some scope for arbitrage. The implied cost of carry-on-the-contract works out to around 0.19 per cent. Fresh long positions can be established at current levels.

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Nifty March: The Nifty March contracts has moved into the two month trading range. Total traded volumes during the week improved by around 34 per cent to 55 contracts as compared to 41 contracts traded the week before. The valuation of the contract may provide some scope for arbitrage. The implied cost of carry based on the last day of trading works out to a negative 1.3 per cent. Long positions at current levels can be considered at present levels.

Sensex January: The Sensex January contract matured during the course of the week. Total traded volumes dropped by around 34 per cent to around 1157 contracts as compared to 1766 contracts traded the week before. As indicated in the previous week, arbitrage opportunities during the course of the week was limited.

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Sensex February: The Sensex February contract has moved into the one month trading range. Total traded volumes jumped up by around 11 times from the previous week. Volumes shot up to 2009 contracts as compared to 189 contracts traded the previous week. As indicated in the previous week, investors with a long position could have closed the contract profitably during the week.

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The valuation of the contract based on the last day of trading provides some scope for arbitrage. The implied cost of carry-on-the-contract works out to a negative 0.33 per cent. Fresh long positions can be considered at current levels.

Sensex March: Liquidity in the Sensex March contract, which moves into the two month trading range, should improve in the near future. However given the extremely low level of liquidity at present, fresh positions at current levels need not be considered.