Karnataka assembly elections 2018: How stock markets may be affected

Stock market participants are uncertain over the direction of market next month when the crucial Karnataka assembly elections are slated, going by the rollover of positions in the May futures and options series.

“Rollovers in Nifty (72.32%) are above its quarterly average in both percentage term as well as in term of net open positions, which indicates that the long positions formed in last month got rolled to the next series ahead of Assemble Election in Karnataka,” Jay Purohit, technical and derivatives analyst of Centrum Broking said.

Some of the previous shorts, which got rolled from March series, are also intact in the system, according to traders.

“In line with our expectations, equities witnessed a smart bounceback in April owing to the intensity of short squeeze. However, now we turn cautious on the index for the May series. With index spending close to eight sessions now near the 10600 mark, there is an element of indecision. Although it managed to close above 10600, we expect it to find difficulty in sustaining here. Any move on the downside will be swift, while upside appears restricted to 10700 odd,” Yogesh Radke, head of alternative and quantitative research, Edelweiss Securities, said in a report.

On the Nifty options front, 11000 call option is attracting traders’ attention, while 10500-10300 put options have added huge positions. Considering the overall options activity, 10400 10800 would be a broader range for the Nifty in May series, Purohit said.

The maximum open interest (OI) for Nifty futures in May will start at Rs 24,500 crore (estimated 23 million shares) compared to OI of Rs 21,200 crore (estimated 20.97 million shares) seen at the beginning of April series.

“A significant surge in OI congestion in the next series on the expiry day suggests that participants have done Calendar Spread or initiating their strategy for upcoming volatile May series,” Chandan Taparia, derivatives and technical analyst at Motilal Oswal Securities, said.

The rollovers in the banking index (82.59%) are much higher above its average rollovers of 70.51%.

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Also, the OI has increased by 29.89% on a month-on-month basis, indicating that blend of long and short positions got rolled to May series.

Nifty concluded the April F&O series a tad above 10600 mark, with a gain of around 5% over its penultimate expiry.

The information technology (IT) sector was the centre of attraction for a major part of the April series as all the IT counters ended well in positive territory in last month, and they also added a huge amount of long positions.

On stock front, good amount of long positions got rolled in stocks including Mindtree, Niit Tech, Tata Elxsi, DCB Bank, National Aluminium.

While counters like PC Jeweller, Reliance Communication, Hindustan Petroleum, BPCL, Idea Cellular and IDBI saw rollover in shorts.

“Foreign institutional investors, who were light on positions at the start of series, too, participated well in the upmove and as a result, their ‘Long Short Ratio’ in index futures has moved higher from 18.20% (March expiry) to 54.40% (April expiry),” Purohit said.

On the expiry day on Thursday, the Sensex rebounded 212.33 points, or 0.62%, closing at 34713.60, while the Nifty rose 47.25 points, or 0.45%, settled at 10617.80 on Thursday.

By Ahana Chatterjee, DNA Money