Fewer India Nifty Bets Rolled Over as Inflows Stretch Valuations

(Bloomberg) -- The cost of extending futures contracts tied to an index of India’s top 50 companies fell on derivatives expiry amid concern a rally that drove valuations to a five-year high will falter.

The roll cost, or the price traders are paying to replace current month futures with August securities, dropped to 55 basis points at 4 p.m. in Mumbai from 68 basis points Tuesday. That compares with a three-month mean of 58 basis points, data compiled by Bloomberg show. Investors carried over 61 percent of their July contracts, less than the six-month average of 75 percent on expiry day, the data show.

“Some bearish positions are getting added amid valuation concerns,” Hemant Nahata, an analyst with IIFL Holdings Ltd., said by phone from Mumbai. “We may see sharp selling in the final hour of trade if roll costs fall substantially.”

The NSE Nifty 50 Index rallied 4.6 percent this month, its best performance since March, as a rebound in emerging-market equities attracted capital inflows. The index trades at 16.8 times 12-month projected earnings on a weekly basis, making it the most expensive since November 2010, data compiled by Bloomberg show.

The India VIX Index, a gauge of protection against stock market swings using options, fell for a third day. The index has traded below this year’s mean of 17.5 this month as global funds bought a net $1.3 billion of local shares, the most since March, easing anxiety about the impact of the U.K.’s decision in June to leave the European Union.

Derivatives contracts in India expire on the last Thursday of every month.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Ravil Shirodkar, Andrew Janes