Derivatives Show Retail Traders Bullish Even As India Run Eases

(Bloomberg) -- The rally that propelled Indian stocks to a record earlier in July stalled last week, but positioning in the derivatives market shows that retail investors continue to be bullish.

The benchmark NSE Nifty 50 Index failed to scale a much-hyped 20,000 level and has fallen over 1% from its peak on July 20. While the bar seems high for earnings to drive more gains this results season, here are four charts that showcase confidence among retail traders:

Index Futures

Retail participants exited both their long and short index futures positions on the expiry of weekly and monthly contracts on Thursday. However, the cut in short positions was nearly five times that of long ones. The extent of the drop in short positions - which signals their bullish outlook on the market - was also the biggest since they liquidated nearly 47,000 contracts on May 25. 

Stock Futures

Retail traders' activity in individual stock futures paints a similar picture of confidence. Over 66,000 short positions were exited on Thursday, six times more than the long ones. It was also the largest liquidation of short positions since November 24. 

Index Calls

Index calls saw retail traders exit both long and short exposures, but again, the extent of short liquidation was greater. That resulted in the net position swinging from a net short exposure of 218,000 one day prior to expiry to 6,600 contracts long on Thursday. 

Index Puts

Index puts saw retailers liquidate nearly the same amount — 2.8 million — of their long and short exposures on Thursday, with the net position standing at -357,000 contracts. This short put exposure also suggests that the mood remains sanguine, with investors expecting the ongoing correction to be short-lived.

The Nifty 50 Index was up 0.3% as of 12:23 p.m. in Mumbai on Monday. The MSCI Asia Pacific Index was up 0.5%, boosted by a rally in China and Japan.

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