Rollovers hint at a bullish start to 2023

About 79.2% of Nifty futures contracts were rolled over to January on Thursday as per actual exchange data. This is slightly higher compared with the three-month average of 78.6% but lower than 90% of the carried forward positions in the previous series.

“Last week’s selloff in the markets have disrupted the trajectory,” said Sriram Velayudhan, head, IIFL Alternative Research. “Even with a tinge of positive sentiment, it won’t be a smooth ride upwards for the markets. We expect banks and financials to lead the rally while the metals pack could be the joker in the pack.”

Traders are expecting the markets to rise after last week’s sharp fall, and do not want to lose out on a likely pre-Budget rally. However, the regional re-allocation of foreign funds will influence the mood and performance of equity markets into the new year, he said.

Analysts said the fall in rollover costs underscores the cautious mood among domestic participants, especially retail, given the macroeconomic uncertainties. Some of the key events to monitor are US inflation print as well as the jobs report, start of India’s second quarter earnings, and the evolving Covid situation in China, they said.

The cost to carry forward futures positions stood around 61 basis points (bps) compared with 90 bps in the previous series but about 45 bps in the previous three months. 100 basis points equal 1%. Rolling over involves switching futures bets from the near-month contract approaching expiry to the next month. High rollover at a hefty premium is seen as a sign of bullishness.

“The rollover activity indicates that long aggression is missing as witnessed in the previous series,” said Chandan , head -technical and derivatives research, . “Overall, positive bias may remain intact and declines could be bought in the market.”
On Thursday, the Sensex closed at 61,133, up 223 points or 0.37% from the previous close. The Nifty advanced 68 points or 0.38% to close at 18,191. Both indices rose 1.2% from intraday lows led by gains in banks and metals stocks.

It will be critical for the Nifty to breach the resistance of 18,442, said Taparia. That would take the index towards 18,887 – the all-time high it touched on December 1. The crucial support for the index is seen at 17,777, he said.

Shares began on a weak note mirroring a fall in Asia as soaring Covid cases in China rattled investor confidence, wiping out excitement linked to easing of restrictions and reopening of the world’s second-largest economy. Overnight, the US markets also closed lower.

“A large part of the day was dormant due to the holiday season but we saw trading activity pickup in the last couple of hours before expiry, mainly led by quarterly NSE indices rebalancing,” said Velayudhan.

Bank Nifty rollover stood at 86.3% compared with 88.2% in previous series and the average of 83% in the previous three expiry. Marketwide rollover stood at 92% – in line with the three-month averages.

“We expect the positive momentum to continue in the near-term led by banks, automobiles and metals,” Taparia said.

Since the all-time highs on December 1, benchmark indices fell more than 5% with most of the cuts seen last week as risk-off sentiment intensified worldwide on renewed concerns over the spread of Covid besides strict commentaries by central banks to keep interest rates elevated despite risks of pushing the global economy into a recession.