New contracts fuel OI to all-time high

The open interest (OI), a key indicator of leveraged position in the derivatives market, hit an all-time high on Wednesday. Despite the high levels, the markets saw a smooth rollover on the expiry of May contracts.

"The high OI is mainly due to the introduction of additional stocks in the derivatives segment. However, any sharp downward move in the stock market will see unwinding of long positions. But we feel the market is much more equipped now to deal with the situation compared with last May," said Sunil Jain, derivative analyst at Edelweiss Securities.

Jain, however, cautioned that the last 8-10 days euphoria in the market has drawn in retail investors, who are considered a weak-link, into the F&O market.

The June series, which begins on Friday, also has the highest-ever open interest witnessed in a new series. With the introduction of CNX-100 and Nifty Junior derivatives from tomorrow, volumes are expected to increase further.

On Wednesday, a day before the rollover, the OI was Rs 69,961 crore, reflecting a slow but steady built-up in leveraged positions. The total OI in Nifty futures was Rs 15,247 crore and in stock futures, it was Rs 32,251 crore. The options accounted for another Rs 22,463 crore in OI.

The OI has been ruling at Rs 65,000-plus crores in the last 2-3 days, but analysts say the market is nowhere near the excess leveraged zone witnessed in May 2006, which eventually led to a crash.

An analyst with BRIC Securities said, "Unlike last May, the bets are taken this time by institutional players. Hence, there is no cause for worry," he said.

A day before the derivatives expiry last month, the OI was about Rs 63,000-odd crore.

The introduction of 68 new stocks in the F&O segment over the last one year has contributed to the rising OI in recent times.

The OI of stock futures last May, with lesser number of scrips, was higher at about Rs 35,000 crore compared with Wednesday's level of Rs 32,251 crore.

The ratio of futures OI to the total OI when the Nifty recently hit an all-time high, stood at a comfortable 68 per cent compared with last May's level of over 80 per cent, say analysts.