Nifty ended the June series with a gain of 3 percent which is identical to the gain it clocked in the May series. Bank Nifty underperformed the Nifty and ended with a loss of 0.8 percent. Nifty's gain of 3 percent was majorly led by 2 stocks - Reliance Industries and Infosys which contributed to more than 50 percent of the gains.
The retail participation in the futures Open Interest continued to increase and is now at almost a 6-year high. The chart below depicts the open interest (OI) positioning of the various participants at different points in time. The net-short by domestic institutional investors (DIIs) is not a directional bet but is the short futures held by the arbitrage funds.
The net longs by the FIIs, on the contrary, had fallen to almost 3.5 years' low during the June series. A major reason for this could be the unwinding of arbitrage positions by the FIIs rather than a directional view on the markets. The extent of USDINR forward premia determines the extent of arbitrage available for the FIIs. This premia was high until the end of the April/May series which made it lucrative for a section of FIIs to hold their long positions in the futures rather than in the cash market. And when the premia fell, they converted their longs back into the long cash market positions. The article here tries to explain the reasons for the high premia and why it suddenly fell.
In short, one should keep in mind that the rise or fall in stock futures positioning by the FIIs need not necessarily be a function of their view on the markets but could just be a change in their arbitrage positions.
Nifty rollover was at the highest level in a year at 84 percent and has been increasing since the past 2 expiries. Bank Nifty rollover was strong as well at 84 percent, the highest since March 2021.
Amongst the sectors, Banks (96 percent versus 90 percent in May 2021), Materials (96 percent versus 93 percent in May 2021) and Healthcare (96 percent versus 93 percent in May 2021) saw the highest rollover in June series. Telecom & Media (71 percent versus 88 percent in May 2021) saw weak rollover (mainly because Vodafone Idea was in ban).
The high rolls in the Banking sector indicate that this sector could outperform Nifty in the July series. Also, the ratio chart of Bank Nifty by Nifty shows that the ratio is very close to its support zone. The ratio is very near to the bottom it made in January, April and May 2021 which increases the likelihood of Bank Nifty outperforming Nifty from hereon.
Also, the last 20 days' volatility of many banking stocks is in the bottom 2 percent percentile range versus their 20 days' volatility calculated on a rolling basis for the last 3 years. i.e. on 98 percent of the occasions in the last 3 years, 20-day HV (historical volatility) for many banking names was higher than what it is now.
In layman's language, for e.g., Axis Bank has been moving in a 3.5 percent price band on a closing basis for the last 20 days which has resulted in low HV for Axis Bank. HV can increase either by stocks rising or falling. But given the rolls data and the ratio chart discussed above, chances of upmove look more likely.
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