The NSE Nifty 50 may have been flat since the beginning of the August derivative contract but index heavyweights, which have seen significant price correction, saw their futures open interest position near double since July-end.
The Nifty 50 has fallen only 0.9% since July 27 but some of the heavyweights like Reliance Industries Ltd. and Tata Motors Ltd. have underperformed the benchmark indices. RIL has fallen 14.8%, while Tata Motors has corrected over 28% since July 27, the start of the August derivative contract.
Significant position buildup in terms of open interest positions began at the beginning of the October contract when foreign investors began selling stocks, moving money back to US markets as part of the Trump trade. Foreign investors were net sellers for 38 continuous trading sessions in India, net selling over Rs 1.10 lakh crore during the period.
RIL has been facing shareholder disappointment after the annual general meeting failed to provide a timeline for monetisation of its consumer businesses. It also indicated delay in the operationalisation of the new energy business. Despite the company announcing a generous 1:1 bonus, the investors have not been optimistic on its retail business, which is facing operational headwinds and challenges from emerging quick commerce dynamics.
Tata Motors is also facing challenges in terms of safeguarding its market share in the sport-utility-vehicle segment. It is also seeing challenges from MG Motor and the Mahindra Group in the electric space.
During this period, investors, largely institutions, have taken up short positions in futures as their hedge against the cash-market position in their portfolio.
According to the data analysed by NDTV Profit since the beginning of the August contract, the market-wide futures open interest has largely remained flat during this period. But key index movers have seen significant increase in the open interest positions.
RIL's near-month open interest, which stood at Rs 12,089 crore on July 27, has risen to Rs 21,266 crore as on Dec. 9, a jump of 76% since July. Similarly, the open futures interest positions for Tata Motors has risen 98% to Rs 7,838 crore since July 27.
The largest private sector banks, HDFC Bank Ltd. and ICICI Bank Ltd., which saw their share price rise 16.5% and 9% respectively, have seen a decline in their open interest. For HDFC Bank, open interest declined 14% to Rs 24,323 crore on Dec. 9 and for ICICI Bank, the open interest largely remained unchanged at Rs 10,603 crore.
Axis Bank Ltd., State Bank of India and Kotak Mahindra Bank Ltd. saw an increase in their open interest position by 52%, 17% and 8% respectively. The share price for these three banks were marginally lower during the period considered above.
Technology stocks, which have run up in the last two months, have seen a significant increase in their open interest. Tata Consultancy Services Ltd.'s open interest has more than doubled by 122% to Rs 5,059 crore, while Infosys Ltd.'s open interest has risen just 7.2%. The jump in open interest coincides with the run-up in tech shares from October. The move is seen as a hedge against the share-price correction going into the end of the year, a quarter that is traditionally weak, given the furloughs faced by the companies.
Domestic institutional investors like mutual funds who have been net buyers in the market have been actively hedging their portfolio by taking counter positions in the futures markets.
The overall open interest in the near month stock futures stood flat, accounting for the 45 new stocks that got added in the December contract, at Rs 4.14 lakh crore on Dec. 9. The Nifty 50 near month futures open interest on Dec. 9 declined 21.6% since July 27, while the Nifty Bank Open Interest for near month futures rose 25.9% during the same period.
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