The current stock market rally, which started around mid-May, has continued almost without a break, and the Sensex is now near its 30-month high.
Interestingly, however, the derivatives market has been giving mixed signals about the rally. A majority of current indicators in the futures and options market point to increased caution by market players.
For instance, the cost of carry on most of the front-line stocks has come down considerably in the past one month. A look at the table alongside shows that in some cases like HLL, Tata Motors and Reliance, the cost of carry (also called badla rate by some market players) has more than halved compared with the month-ago figures.
In some other cases like SBI, although the cost of carry has reduced slightly, it still is at pretty high levels of around 20 per cent. Theoretically, this simply indicates that the degree of bullishness in the SBI counter continues to be rather high.
In most other cases, though, the level of bullishness seems to have gone down. Experts tracking the derivatives market are, however, quick to point out that looking at the cost-of-carry in isolation does not make much sense.
