FIIs seem to hold the key to the derivatives market too
Is the current volatility in the stock market the result of trades being unravelled in the derivatives market? According to the latest available data from Sebi, on Monday, the outstanding positions stood at Rs 2,316 crore.
The open interest of the whole derivatives market stood at a little over Rs 8,000 crore on Monday, leading to a concern that if FIIs were to square off their positions before the expiry on Thursday, there could be pressure on the markets.
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But the Rs 2,316 crore position is the gross position of FIIs in the segment - in other words, it does not net off the buy positions against sell positions for even the same contracts.
Therefore, a comparable figure for the gross market position would be Rs 16,000 crore, since it would then capture the open interest on both the buy as well as the sell sides.
In this light, the share of FIIs in the total outstandings in the derivatives segment is around 14.4 per cent and not 28.8 per cent.
This is supported by the figure provided by NSE, which puts the share of FIIs in total outstanding at 13 per cent in contract terms.
Besides, market analysts feel that a big chunk of the FII open interest would be sell transactions.
This is based on the fact that cost-of-carry on a number of scrips were above fair value not too long ago, which prompted arbitrageurs (including some FIIs) to buy on the cash market and sell futures in order to take advantage of the mispricing.
In order to reverse the position, the transaction would be