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Business News/ Market / Mark-to-market/  Average open interest in markets at highest level since 2010
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Average open interest in markets at highest level since 2010

Rise in open interest (OI) indicates that market participants are building long positions as they remain gung-ho on the market

Graphic: Subrata Jana/MintPremium
Graphic: Subrata Jana/Mint

Indian equities have been resilient for quite some time now, moving in a tight range, except for the carnage in the market on Monday, thanks to global cues. While some analysts are not reading too much into this correction as of now, it has to be noted that amid the bullishness, our market has also become highly leveraged.

Average open interest (OI) rose to its highest levels since 2010 in August 2016, highlights a Morgan Stanley report released earlier this month. Rise in OI indicates that market participants are building long positions as they remain gung-ho on the market. OI is the total number of outstanding contracts that are held by market participants at the end of the day.

“In the September series, the index is seen moving towards lifetime high of 9,119. Also, rollovers that have happened from August to September series are at 84%, which is highest in the last 10 years. Apart from that, the Put Call Ratio is at 1.16 times, highest in the last one year. All these point towards bullishness prevailing in the market," said Chandan Taparia, an analyst with broking firm Anand Rathi.

Striking a note of caution, Hemant Natha, an analyst at IIFL, added that in the current series, foreign institutional investors have created massive long positions in index futures. However, an abnormal rise in future OI often results in markets getting volatile, as leveraged positions increase, he said.

Meanwhile, on Monday, the combined OI—derived by adding OIs of stock futures, index futures, put options and call options—fell 1.45% from 2.75 trillion to 2.71 trillion. Though this is not a very significant decline, one should keep an eye on how OI moves from here on, point out some technical experts.

To sum up, if a sooner-than-anticipated interest rate hike by the US Fed happens, then these positions might begin to unwind at an aggressive pace, resulting in deeper corrections.

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Published: 13 Sep 2016, 11:13 PM IST
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