Indian Traders Turn Most Bearish Since March Amid Earnings, Fed

  • Slump in roll costs signal build up in short positions: IIFL
  • Nifty weakness seen amid mixed company earnings, Bihar polls

Indian traders extended the most CNX Nifty Index futures in seven months and the cost of carrying forward contracts fell, signaling weakness for the November series.

The rollover in October index futures was at 74 percent, the highest since March, and compares with a six-month average of 66 percent, data compiled by Bloomberg show. The roll cost, or the difference between current and next month futures prices, slid to 55 basis points from an average 62 basis points in the past six months, the data show.

“High rollovers, along with a decrease in roll cost, signals bearishness,” Hemant Nahata, a derivatives analyst at IIFL Holdings Ltd., said by phone from Mumbai. “Traders have built aggressive short positions amid a weak earnings outlook and before results of the Bihar state elections.”

The 50-stock CNX Nifty Index has dropped 2.8 percent this week, set to end a four-week rally, as earnings from some of India’s biggest companies missed estimates and the U.S. Federal Reserve signaled it’s prepared to raise borrowing costs in December. While 72 percent of the S&P BSE Sensex companies that have posted September-quarter results have matched or beaten estimates, versus 60 percent in the three months ended June, earnings for the gauge have risen just 0.3 percent, the data show

“More than the global factors, even though they are important, a pick up in earnings is more crucial for this market to sustain,” Jagannadham Thunuguntla, head of fundamental research at Karvy Stock Broking Ltd., said by phone. “Earnings are meeting expectations at best.”

‘Downward Bias’

The ongoing elections in Bihar are important for Prime Minister Narendra Modi’s efforts to control the upper house of parliament, where opposition lawmakers have blocked major economic proposals including a nationwide sales tax. A win would give him momentum in about a dozen more state elections through 2017 that will determine control of the body. The results are due Nov. 8.

The India VIX Index, a gauge of protection against stock swings using options, climbed for a third day to 17.9 at 3:18 p.m. The Nifty slid 0.6 percent to 8,066.15, extending four days of declines.

“For the month ahead, the Nifty is setting up on a bearish note,” Tejas Shah, a technical analyst at Edelweiss Financial Services Ltd., wrote in a report on Friday. “We expect the Nifty to consolidate in the range of 7,800-8,200 with slightly downward bias.”

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