Top stock market operators are minting money in the current market by short selling in the morning and covering their shorts during the last hour of trading.
According to brokers, intraday volumes are climbing but positions that are built during the day are not getting carried forward. The reason: The cost of carry has zoomed and no trader is willing to bet on his luck in a volatile market. “Only intraday volumes are climbing, while delivery-based volumes are falling. Traders do not want to carry forward their positions as the cost of carry is too high and they are able to pocket handsome returns at the end of the day by covering their shorts. This is causing panic among investors, who have started cutting even their long-term investment portfolios,” said a leading stock broker, who has large foreign funds among his clients.
Since the Sensex has crashed from 13,500 to a two-year low of 10,740 in the last one month, the average delivery-based volume in frontline stocks has come down to 30-35 per cent compared to 40-45 per cent before September.
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Taking advantage of the erosion of confidence among investors and fire-selling by some India-focussed hedge funds, which are facing huge redemption pressure, top operators are using the futures and options (F&O) segment to short benchmark stocks. This has resulted in a fall in delivery-based transactions.
The cash-settled futures and options (F&O) segment has witnessed an average volume of Rs 9,951 crore in the 50 frontline stocks of the Nifty, the broad-based index of the National Stock Exchange (NSE), in sharp contrast to the volume of only Rs 6,435 crore in the cash segment. During this period, the market capitalisation of the Nifty-50 fell by Rs 285,000 crore, a decline of 14 per cent. Brokers say the F&O market seems to be oversold. The put-call ratio has fallen from 0.94 on September 15 to 0.8 on October 8.
“If one analyses intraday figures, it can be seen that cash-settled mark-to-market (MTM) is fully exploited for intraday short selling and then covered by operators on a daily basis,” says a South Mumbai-based broker.
When the market fell by over 5 per cent on Wednesday intra-day, volumes in Nifty futures hit an all-time high of 5.69 crore shares, indicating a huge build-up of short positions. The previous highest Nifty volume of 5.4 crore shares was clocked on January 21, 2008.
At a recent press conference, Securities and Exchange Board of India (Sebi) Chairman C B Bhave had said, “We already have structures in place. We would not want to copy reactions to a particular crisis. As for the stock lending and borrowing (SLB) scheme, we have asked exchanges for feedback as to why it is not working.”