Derivatives mart gets a whiff of bearish days

Transaction tax tangle, Budget imposts add to the blues

Sellers have taken a firm grip on the derivatives market ever since the the Union Budget for 2004-05 announcements.

As a result, the put-call ratio on the Nifty has zoomed to 1.05 on July 12, before stabilising at 0.94 on July 13 and 14. With the sales bias emerging across derivatives scrips, the put-call ratio in individual stock futures has increased from 0.28 on July 7 to 0.42 on July 13.

On higher volumes, this jump in the put-call ratio is a clear indication that operators foresee a bear market ahead. The surge in volumes followed by a decline in prices indicates an oversold position in the markets.

Turnover tax has dampened whatever enthusiasm was left in the equity and derivative markets, with the cash markets turnover hitting a year's low and daily contracts in derivatives down almost 60-80 per cent from its average in the last six months.

However, the higher put-call ratio on lower volumes indicates the lack of interest by the market participants. The market is waiting for clear direction from the government on the transaction tax.

The daily volumes in stocks and Nifty futures, which were up till the day of the Budget, receded on turnover tax tangle. The number of contracts on the Nifty futures fell from 2,07,500 on July 8 to 56,715 on July 13, and the number of individual stock futures contracts from 2,23,900 to 89,263 over the same period.

The overall open interest position in Nifty call and put options increased on the Budget day amid a fall seen in the market after the presentation of the Budget.

On account of introduction of turnover tax, operators increased their open interest position in Nifty put contracts from 16,828 on July 8 to 18,093 on July 13, and they cut their open interest in Nifty call contracts down marginally from 22,823 on July 8 to 22,817 on July 13.

However, the market has taken interest by building up open interest position in specific sectors and stocks where the Budget has signalled relief.

The open interest in Arvind Mills increased from 49.36 lakh shares on July 8 to 61.14 lakh shares on July 14. Open interest in the ACC counter moved up from 16.50 lakh shares to 23.31 lakh shares while Gujarat Ambuja Cement saw a modest rise from 28.62 lakh shares to 30.17 lakh shares over the same period.

Operators hiked their open interest in HPCL from 15.95 lakh shares on July 8 to 27.44 lakh shares on July 14. Since most of open interest was generated in the put options, the stock fell from the pre-Budget level of Rs 344 to Rs 284 on July 14.

The technology stocks reported little activity in open interest positions ahead of the first quarter results of Infosys Technologies. Infosys which has increased its guidance for fiscal 2005 saw its open interest stationary at 16.23 lakh shares.

But open interest position in Satyam Computer increased marginally from 41.70 lakh shares to 45.05 lakh shares.

The metal sector as a whole was hit by the decision of increasing excise duty on the one hand and reduction in customs duty on the other. This reduced the pricing power of the company with increased competition. As such open interest in Tata Steel moved up from 69.28 lakh shares to 74.89 lakh shares.