Nifty Records Worst Derivative Series Since October 2008, Volatility Surges 304%

The NSE Nifty Index registered its worst derivative series since October 2008 as the equity benchmarks tumbled amid the new coronavirus pandemic.

This was the fourth straight series of loss for Nifty & Nifty Bank derivatives contracts, fuelled by incessant selling in the cash segment by foreign investors. In March series foreign institutional investors sold nearly Rs 60,000 crore worth of Indian equities while domestic Institutions bought around Rs 55,000 crore.

That came as equities across the globe were rattled pricing in the economic impact of virus. The pace of fall across global indices was unprecedented with majority of the markets entering into a bear territory, including the U.S. and India.

The Volatility Index, the fear gauge that tracks investors’ perception of volatility for a month ahead, rose 303 percent during the series, surging to 11-year high as India imposed a 21-day lockdown to combat the spreading virus.

Stock Futures

Not only all Nifty constituents ended in the red but all 143 stocks in the derivatives market also ended with deep losses. 38 stocks fell up to 70 percent.

Levels To Watch

Options data for Nifty’s new series is scattered at various strike prices, according to Chandan Taparia, derivative & technical analyst, Motilal Oswal Financial Services Ltd.

• The maximum call open interest is at 9000 and then 10000 strike, while maximum put open interest is at 7500 and then 8000 strike.
• Call writing is seen at 9000 followed by 10000 strike, while put writing is seen at 8000 followed by 8500 strike.
• Option data indicates a wider trading range in between 7700 to 9200 zones.

VIX has corrected by almost 15 percent from its recent swing high of 86.63, indicating some short-term relief to bulls for a bounce back move, Taparia said.

Bank Nifty should hold above 18,500 levels to witness a bounce towards 20,500 and then 21,000 zone, while support can be seen at 18,300 and then 17,000 levels, he said.

Weak Rollovers

Rollover across all indices and stocks were on the lower side as before the series expired, the market regulator changed market wide position limit and increased margin requirement for F&O stocks and capped index derivatives to curb volatility.

The last week of expiry also saw 90 percent of the dealing room staff working from home as the government made it mandatory for employees to work from home during the 21-day lockdown.

Due to heightened volatility and SEBI's new measures, brokers were extremely cautious to allow their clients to roll over their positions to the next series, BloombergQuint’s found in its conversations with dealing rooms. That resulted in weak rollovers for the new series.Rollover across all indices and stocks were on the lower side as before the series expired, the market regulator changed market wide position limit and increased margin requirement for F&O stocks and capped index derivatives to curb volatility.

Sectoral Rollover

• Positive Rollover: Consumer goods, fertiliser and chemicals.
• Negative Rollover: Auto, banks, engineering, metals, oil & gas, telecom.
• Neutral Rollover: Pharma and IT

Index Futures

Foreign institutional investors at the beginning of the series are net short by 49,492 contracts versus 136,035 contracts in the previous series. Foreign investors turned net short for the third straight series now.