Selling interest opens up on bourses

Open interest, the carry-forward position of stock market participants, increased by Rs 18,000 crore "" nearly 50 per cent "" in the first six days of the December contract, whose trading began on the first day of this month.

This increase "" from Rs 35,400 crore on the last day of the November contract to Rs 53,300 crore on December 8 "" is the sharpest in any near month contract in the last six months. 

OPEN INTEREST LAST WEEK
(in Rs crore)	OI	Nifty
30-Nov	35,400	39,54.50
1-Dec	40,900	39,97.50
4-Dec	44,600	40,01.00
5-Dec	47,100	40,15.75
6-Dec	51,400	40,15.95
7-Dec	52,700	40,15.35
8-Dec	53,300	39,62.00

A higher open interest means the participants perceive the market to be over-bought. This is being seen as one of the reasons why the market broke its eight-week rising streak last week, with the S&P CNX Nifty losing 35 points to close at 3,962, and the Bombay Stock Exchange's benchmark Sensex dropping 45 points to 13,799.

The combination of rising open interest and falling stock prices may bode ill, since the two together mean traders are building a "sell" position.

"The falling dollar and an indication of a slow down of the US economy are an indicator of a downward trend in equities, which may be witnessed in the coming weeks, " said IndAsia Venture Advisors' Chairman Pradeep Shah.

In addition, the Nifty put-call ratio rose from 0.96 last Thursday to 1.41 a day later, when foreign institutional investors (FIIs) sold heavily. FIIs also sold net index options worth Rs 60 crore and stock futures worth Rs 105 crore. The cash market's provisional figures show they were net sellers for shares worth Rs 205 crore.

An increase in the put-call ratio, a result of the participants buying more put options than call options, meant they were protecting their buying positions and could be selling shares to buy call options.

However, although the current valuations were not cheap, India could continue to attract buying by foreigners on the strength of its positive long-term triggers, such as a strong gross domestic product growth, and less-than-impressive growth expected in most developed markets, an analyst at HDFC Securities said.

Considering the sustained rise over the last two months, one should not be surprised by a downward correction. However, on the positive side there are many investors waiting for a correction to invest large sums.