By Bharath Rajeswaran
(Reuters) -The slide in Indian equities in October, which was the steepest since March 2020, is likely to extend into November as investors continue to lean towards “sell on rally”, brokerages’ analysis of the October equity derivatives series showed.
The market-wide open interest (OI), or the total number of active unsettled contracts in futures markets, has fallen for the first time in 12 monthly series, the analysis showed, marking a trend reversal and indicating a bearish outlook.
The OI declined to 4.068 trillion rupees ($48.38 billion) at the start of the November series on Nov. 1, from 4.802 trillion rupees at the start of the October series on Sept. 27, according to Nuvama Alternative and Quantitative Research.
Of that, Nifty futures alone started the November series with an OI of 281 billion rupees, nearly half the 451 billion rupees at the start of the October series, according to Nuvama Alternative and Quantitative Research.
In line with the OI reversal, the benchmark Nifty 50 index fell during the October series after gaining during each of the previous four series.
The index’s roughly 8% slide from an all-time high on Sept. 27 through the end of October was mainly due to a record-high $11.2 billion in equity sales by foreign investors over the month.
Investors took the chance to “sell on rally”, a strategy used in a market downtrend that involves taking a short position and using a temporary rally to log minor gains. It is the opposite of “buying the dips”.
The derivatives expiry data indicates that the strategy is likely to continue in November, according to Chandan Taparia, head of equity derivatives and technicals of wealth management at Motilal Oswal.
“(The Nifty 50) Index is trading below all short-term moving averages and the current price action suggests that further profit booking may occur before the market finds stability,” said Taparia.
Nuvama’s data further shows that foreign investors flipped to short positions worth $1.5 billion, on a net basis, in Nifty futures at the end of October expiry, from a net long position of $3.13 billion at the end of the previous expiry.
Meanwhile, client category, or high-net-worth individuals and retail investors went in the opposite direction in that period, flipping to net longs of $2.08 billion from net shorts of $2.21 billion, the data shows.
Client category covered their shorts in October series, while foreign investors unwound their index longs and added significant shorts in October series, said Abhilash Pagaria, head of Nuvama Alternative and Quantitative Research. ($1 = 84.0860 Indian rupees)
(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Savio D’Souza)
