Rollovers Action: Expiry Day | Market-wide: 92% | Nifty: 81% | Bank Nifty: 88% | Stock Futures: 93%

25 Nov 2022 , 10:36 AM

Risk assets rallied on the back of a less hawkish inference from the FOMC minutes. Nifty closed last session of the November expiry in the green (+1.2%). For the November series, Nifty has gained ~4.2%. Going into December series, analysts at IIFL Capital Services will stick to their bullish stance expressed in their last month’s expiry day note eyeing all-time highs. IIFL Capital Services’ Nifty target for December series will be 18900 with key support placed at 18100. Interestingly, return seasonality trend of last 20 years for month of December based on empirical evidence also shows Nifty having 80% probability of closing in the green. In this study period, out of all the months, December has also given the highest average monthly gains of ~3.2%. Long roll aggression was the hallmark of this series. Long aggression meant Nifty rolls continued to inch-up (~80 basis points versus 57 basis points yesterday. Surprisingly SGX Nifty rolls traded at 91 basis points. Historically SGX Nifty rolls have traded at discount due to charges differential between India and off shore), indicating FPIs may be now aiming for a breakout in Nifty from all-time high of 18600 recorded in mid-October last year. SSFs rolls too saw premium expansion with most trading at ~+75 basis points versus +70 basis points on T-1. Banks (HDFCB/IIB/BOB/CBK) witnessed roll levels of +75 basis points indicating long rollers intent to carry positions despite annualized cost of ~+8%.

Key events to watch out in December are:
·         RBI policy meeting
·         FOMC interest rate decision
·         ECB monetary policy meeting

With COVID cases again on the rise in China, the street will be keeping a close watch on the developments there as well.

On the expiry day, market-wide rollovers stood at ~92% which is higher compared to the average rollovers of 90% (last 3 series). Market-wide futures open interest (OI) stands at ~Rs 2.26 trillion (~Rs 2.15 trillion seen at the start of November series). Nifty futures rollovers were ~81% which is also higher compared to 3m average rollovers of 78%. Nifty futures OI stands at Rs 225 billion (~12.19mn shares) as against an OI of Rs 209 billion (~11.79mn shares) at the start of November series.

Average levels across stock futures shot up to ~75 basis points (cost to long rollers). Roll levels were firm all along especially in financials. At the start of December series, in index futures, FPIs are net long of ~87.95k contracts (versus net long of ~23.28k contracts at the start of November expiry). In stock futures as well FPIs are net long (~136.33k contracts versus net long of ~117.37k contracts at the start of last series). The client category net long positions in stock futures stands at ~1144.78k contracts as against ~1038k contracts seen at start of November series.

On the sector front, standout performers in November were metals and IT. Relative underperformers were pharma, auto and realty. At the start of December series, open interest (value) has become heavier in banking & financials led by long build up. OI base in metals and IT is lighter. IT, believe analysts at IIFL Capital Services, will be an interesting space to watch out in December series as a light open interest base will provide ammunition for the stocks to fire up.

Long aggression: HCLT (+69 basis points), ICICIBC & Z (+68 basis points each), BOB & HNDL (+67 basis points each), HNAL (+66 basis points) and AL (65 basis points)

Short aggression: DLPL (-280 basis points), SHTF (-160 basis points), LTTS (-150 basis points), COFORGE (-135 basis points) and SRCM (-83 basis points)