F&O expiries spur immediate bouncebacks

Surprised by Friday's bounce back in the market when the benchmark Bombay Stock Exchange Sensex gained 179.66 points in a single day?

Don't be, because this has been the trend on every Friday after the last Thursday of every month "" the date when contracts in the futures and options segment of the National Stock Exchange (NSE) expire.

The markets seem to rebound sharply "" and unerringly "" the very next day.

This means investors take aggressive long positions in the cash segment of the market with the F&O contracts out of the way.

In the last four months, only once "" in October "" has the Sensex slipped by 43 points. In all the other months, the Sensex has risen.

After the expiry of the December series, the Sensex had rallied 80.15 points on December 31, by 122.74 points at the end of the November series (November 29).

Deven Choksey, chairman and managing director, K R Choksey Securities, said, "Since the markets were in the bull phase, investors took long positions every time in anticipation of earning potential in the beginning of the month. This shows investors are expecting the bull run to continue."

Similarly, a leading NSE broker added this trend is a clear indication that investors are bullish on the market and are buying in the futures market even if the underline stocks were trading at a premium." FIIs have been net buyers in the cash market on all four occasions, a day after the expiry of the contract in the F&O segment.

For instance on October 1, 2004, the FIIs were net buyers to the tune of Rs 242.8 crore, on October 29, they were net buyers of Rs 1195.1 crore, on November 29, they were net buyers to the tune of Rs 498.2 crore, on December 31, they were net buyers to the tune of Rs 106.8 crore.