Beware India Inc! A Lot Of Short Positions Riding On Third Quarter Updates
Since August, each series has begun with a stock futures open interest of nearly Rs 4 lakh crore, that is, nearly 70-80% of the stock futures open interest witness roll over into the next series.
In the next two weeks, India's top tier companies will start updating the street with their third quarter updates. But a lot of short positions are riding this time around for the companies, which will look to guide the street on their quarterly performance.
And the managements are aware.
Nifty 50 has fallen 4.5% so far since Oct. 1. The index has seen support only from the private banking stocks.
Nearly Rs 4.5 lakh crore of stock futures open interest positions are riding on over 220 companies in the December futures and Rs 18,000 crore in the January futures. With Dec. 26 as the expiry for the current derivative series, a large part of the near month futures open interest is expected to get rolled over to January futures in the next 10 days.
According to data available on the NSE, since August, each series has begun with a stock futures open interest of nearly Rs 4 lakh crore, that is, nearly 70-80% of the stock futures open interest witness roll over into the next series.
The street will go into the January series with three headwinds—slowing economy, slower consumer demand, and slowing earnings. This makes the December roll-over important not just for the street but also the company managements, who are aware of the short positions being built into their stock futures.
This means, going into the January series, stocks will be heavily loaded with short positions in anticipation of the headwinds that companies are set to face. The top 20 stock futures part of Nifty 50 are carrying open interest of nearly Rs 1.70 lakh crore and that accounts for 68% of the weightage of the benchmark index, that is, two-third of the Nifty 50 weights.
HDFC Bank stock futures is riding on Rs 24,152 crore of Open Interest on the back of 14% run in the stock in the last few months, led primarily by the MSCI index rebalancing. The street will be looking at commentary beyond the quarterly update on advances and deposits.
Reliance is another heavyweight loaded with short positions going into the January season. The stock has over Rs 21,000 crore of open interest in December series.
Banking and finance stocks are loaded with over Rs 68,500 crore of futures short positions going into the end of the December series, while Nifty Bank futures open interest stood at Rs 12,840 crore.
ICICI Bank is carrying a short futures position of over Rs 10,000 crore and Infosys is carrying a position of over Rs 9,100 crore.
Among other private banks, Axis Bank and IndusInd are carrying positions of Rs 9,100 crore and Rs 5,300 crore, while Kotak Bank and Bajaj Finance are carrying positions of over Rs 6,700 crore each in December series.
Auto stocks, led by passenger car makers, are at other segments which has seen significant build up in the short position at over Rs 23,400 crore. Tata Motors which has corrected over 28% in the last few months has seen its open interest positions double to nearly Rs 8,000 crore in December, followed by Mahindra & Mahindra Ltd. and Maruti. Two-wheeler stocks haven't seen much increase in short positions.
In the FMCG space ITC Ltd., Hindustan Unilever Ltd. and Godrej Consumer Products Ltd. together have open interest position of over Rs 10,000 crore.
With the additional 45 stocks added to derivatives in the December series, investors are taking up short positions on stocks like Dmart, Kalyan Jewellers, Nykaa and PB Fintech, though the positions are still small compared to index heavyweights.
