Rollovers and November series of Nifty Futures provides a clear roadmap for investors

• Rollovers for Nifty Futures stood at 83%, higher than the last three series, which were at 79%.
• Looking back at the October series, it initially appeared to be a calm period for the domestic markets, with trading within a stable range.
• October’s selloff not only due to geopolitical risks, but because Indian equities reached the overheated zone.
  

October has been tumultuous for investors as it began with much promise but ended up burning many who did not read the signals right. The November series of Nifty futures is set to begin with a higher open interest (OI) base compared to the October series, indicating a significant short build-up. Rollovers for Nifty futures stood at 83%, higher than the last three series, which were at 79%. This suggests that traders are actively shifting their positions to the November series.

On the expiry day, the roll cost for Nifty was around 50-52 basis points (bps), slightly higher than the previous day's 50 bps. Market-wide futures open interest at the start of the November series is at approximately Rs 2.710 trillion, lower than the Rs 2.863 trillion seen at the start of the October series. However, market-wide rollovers are at 92%, higher than the three-month average of 91%.

According to Nuvama Alternative and Quantitative Research, stock futures rollovers are at 94%, higher than the average rollovers of the last three series at 93%. The roll cost for single stock futures (SSF) today was around 63-66 bps, slightly lower than yesterday's 66-70 bps. Nuvama had anticipated October’s fall in their earlier note and it has played out pretty much like their analysts predicted.

Looking back at the October series, it initially appeared to be a calm period for the domestic markets, with trading within a stable range. However, starting from October 18th, there was a sudden surge in volatile price activity, triggering relentless selling pressure. This pressure affected not only heavyweight stocks but also small and mid-cap stocks, which are usually market favorites. The October series will be remembered for its suspense, slight ups, and rapid descents, showcasing the dynamic nature of equity markets.

October’s selloff can be attributed to several factors – not just geopolitical triggers. The key ones are rising US bond yields, rich valuations of the Indian market and, of course, the earnings season. Markets were simmering on multiple fronts, reaching an overheated territory. This correction, which was long overdue since the last series, has finally begun to unfold, marking a significant shift in the market landscape.

During the October series, the Nifty Index declined by 3.4%, settling at 18,857, while the Nifty Bank was down 4.6%, settling at 42,280. The Midcap Index and Small-cap Index also experienced losses of 5% and 1.8%, respectively.

In terms of sectoral performance, the PSU Bank Index was hit the hardest, down 8.7%, followed by the IT Index (down 5.2%), Metals Index (down 4.7%), Media Index (down 4.4%), Pvt Bank Index (down 4.2%), Fin Serv Index (down 3.8%), and Pharma Index (down 2.5%). The only index that managed to settle in the green was the Realty Index, up 0.3%.

Amidst the market drama, foreign portfolio investors (FPIs) pulled out over $2 billion from Indian equities in October. However, the net inflow from March till date still totals to $14.4 billion. Rising interest rates, US bond yields, and lofty valuations are commonly cited reasons for FPIs withdrawing flows. On the other hand, domestic institutional investors (DIIs) continued to inject funds, nearing an impressive $3.1 billion. The participation of high net worth individuals (HNIs) and retail investors, although not officially reported, is believed to have had a significant influence on the market.

In conclusion, the rollovers and November series of Nifty futures provide valuable insights for investors. The higher open interest base and significant short build-up indicate a shift in market sentiment. The October series, with its volatile price activity and market turbulence, serves as a reminder of the dynamic nature of equity markets. Investors should closely monitor the rollover data and OI positions to gauge market sentiment and make informed investment decisions.