Brace For Impact, The Most Volatile Month Ahead: Open Interest

The year 2025 is turning out to be the most volatile for the Indian and global markets. The once decoupled Indian market is seeing the impact of global events that are not only influencing markets and flows, but also corporate earnings at the same time. These events are now having an impact on the Indian market for a longer duration than ever before.

Going into 2025, Trump trade saw flows getting diverted to the US markets. This was followed by Trump tariff tantrums and the US imposing tariff across all trading partners, including India. While there was a 90-day pause on Trump tariff, the markets witnessed India and Pakistan conflict, followed by West Asia—Israel and Iran—conflict.

All these events have brought in volatility into the Indian markets, with investors using derivatives to hedge their positions. The first quarter of the current financial year has seen trading volumes rise, led by block deals and options trading. According to the data released by the government, STT revenue grew at 12.1% between April and June 19, 2025. This is despite the fact that SEBI restrictions on weekly options trade has reduced the number of retail investors by over 20% in the last eight months. So, while trading turnover may have reduced, this hasn't deterred premium turnover much, which has been trending high to pre-November 2024 levels. Having said that, Nifty Futures and Options are being increasingly used to trade in this volatility by market participants.

July is turning out to be a cliff-hanger, as the direction of the markets will be determined by the outcome of some of the most crucial events during the month.

Some of the market moving events include:

• Trump's decision to join the Israel-Iran conflict.

• July 9 deadline of Trump tariff.

• FOMC meet.

• Pharma tariff.

• First quarter earnings.

• Bank of Japan Policy Meet.

Trump's decision to join the Israel-Iran conflict will increase the risk premium for global commodities, especially oil. This is expected to import inflation in economies with high dependence on imported oil. While India could absorb this inflation, given the trajectory of the inflation predicted by RBI, the future rate cut could see a pause. The street is divided on 25-50 bps additional rate cut by the end of the calendar year. 

Trump's tariff deadline hangs over the Indian market. India and US have high delegation level negotiation on tariff, there is no clarity whether a decision will be reached by July 9 deadline. Will Trump provide another 90-day extension for a trade deal to be signed, given his administration is in active consultation with over 20 trading partners? 

The pharma tariff  is also something that will be watched out by the Indian market, with Trump threatening tariff on pharma intermediates and drugs which could impact Indian firms in the medium to long terms.

The street is pencilling hope at the next FOMC for a rate cut, but lack of clarity over tariff could delay any rate cut decision. The Bank of Japan is also holding off on interest rate hike despite rise in inflation. 

The first quarter earnings are expected to be muted. Given the recent advance tax number, corporate advance tax is seen rising by 5.9%. Which means it is estimated that corporate earnings will grow around 4.4% in the first quarter. The data shows non-corporate advance tax (by individual category and others) has degrown by 2.7% in the first quarter.

The data does not enthuse any optimism for the first quarter earnings. On that front, Accenture has weak order flow and employee addition guidance, even as numbers are expected to be above estimate.

Each of the above events would have a bearing on how the market will move in the second half of the year.

The Nifty has risen around 6% so far, since the beginning of the year. This compares to a fall of 4.8% in the Nifty Small Cap 250 Index and flat movement for the Nifty Midcap 150 Index.

June expiry is expected to be volatile with Nifty seeing a support at 25,000 level. Nifty Futures open interest is trending above the last 30-day open interest and is heading to the same level as September 2024. The FIIs are sitting at over 50% of the overall Nifty Futures open interest and Nifty Futures July open interest is already trending higher ahead of rollover in the next few days. Fresh shorts are being built up in July in anticipation of a volatile series.

Brace for impact!

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