Rollovers Action: T day September 2022 Expiry

30 Sep 2022 , 12:29 PM

Despite positive overnight cues, the index faced hurdle near to the 200DMA to finish the day lower by ~0.24%. For the September series, Nifty lost ~4%. After a strong July and August series, equities have hit a roadblock after FOMC’s hawkish rhetoric to curb inflation through aggressive rate hikes. Hardening bond yields in the developed markets are also spooking the financial markets.

For the October series, analysts at IIFL Capital Services will be cautious on Nifty and believe this round of correction has potential to take the index back to 16350 levels. On the upside along with the 200DMA (17000), 17350 handle will be the key resistance for the index.

IIFL Capital Services’ September expiry view largely panned out on expected lines as index broke out of 17800 shackle before running into resistance around the 18100 levels.  

Going into the next month, key events to watch out are decision on rates by the central banks (RBI, ECB, BOJ), India and UK CAD, US GDP and employment data, CPI (India, EU and US). Two asset classes that will be closely monitored are the DXY and US10 year yields.

Market-wide rollovers on the last day of expiry stands at ~91% which is in line with average rollovers of last 3 series. Market-wide futures open interest (OI) stands at ~Rs2.1 trillion (~Rs2.12 trillion seen at the start of September series). Nifty futures rollovers were ~78% which is in line compared to 3-month average rollovers. However, in line rollovers are on a relatively higher open interest base a major part of which, according to analysts at IIFL Capital Services, are shorts. Nifty futures OI stands at Rs205 billion (~12.16 million shares) as against an OI of Rs200 billion (~11.40 million shares) at the start of September series.

Average roll levels across stock futures were ~48-50 bps (cost to long rollers). However, shorting did exert some pressure on the roll levels. At the start of October expiry, FPIs are net short of ~121.92k contracts in index futures and ~23.09k contracts in stock futures. FPIs are net shorts in stock futures for the first time since November 2021 expiry. Interestingly, the client category has increased long positions in stock futures (net long open interest in stock futures currently stands at ~1134k contracts compared to ~939.35k contracts seen at start of September series). This, believe analysts at IIFL Capital Services, is a cause of concern as sustained weakness in markets can lead to retail deleveraging and increase volatility.

On the sector front, relative outperformers in September were defensives (FMCG and pharma) and industrials. Relative underperformers were realty, oil & gas and IT. At the start of October series, open interest (value) has become heavier in cement & construction, capital goods and chemicals. OI base in banks & financials, auto and IT has become lighter.

Both Nifty (OI/Price: +7%/-4.1%) and Bank Nifty (+7%/-3.5%) have seen short additions. Among banks & financials, ICICI Bank (-10%/-3%) saw long unwinding. Axis Bank (+8.4%/-3.8%) and Kotak Mahindra Bank (+61%/-5.6%) saw short additions. Interestingly among IT names, both Infosys (+2%/-8%) and TCS (+7.4%/-6.9%) witnessed marginal short build up. RIL (+19.5%/-11.7%) has also seen significant short build up. After a stellar rally over last few months, most of the auto names have seen long unwinding in September.

Long aggression: BOB (+53 bps), FB (+54 bps), IH (+55 bps), AL (55 bps), MSIL (55 bps), SBILIFE (55 bps)
Short aggression: DLPL (-650 bps), MUTH (-230 bps), COFORGE (-190 bps), SRCM (-140 bps), CROMPTON (-120 bps)