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Nifty Declines Before Long Weekend; Rollovers Forcing Values Down..

Nifty declines before long weekend; Rollovers forcing values down..

Nifty Dec expiry next week, but Tuesday holiday and FIIs are in holiday mood. Typically max rolls tend to happen on Tuesday of the roll week. But with holiday season and long weekends overseas, rolls have started earlier. So today’s price action is largely influenced by rollovers. (Dr. C K Narayan’s post in Trader Central at 2018-12-21 11:17:54)

Looking at the data it is seems to me that there is a downward bias for the roll spread and perhaps that is why we are seeing some aggression on the roll activity today. This is forcing prices down as short rolls are being put thru max to grab a better yield. We can expect this pressure to continue till day close. So today may not be a good buy-the-dip day.

Nifty rolls around 42 levels. Looking at the fact that Jan is a long expiry (31st Jan next expiry) and that there is a dividend element of almost 15 points, the roll spread at 50 bps seems cheap and hence any further dip may get bought into. So unless there is some bad news that emerges now, the Nifty Fut is unlikely to break 10800 for this expiry.

There are several stock rolls trading cheaper than last month (and roll costs are below 40-50 bps) and this may point to two things. Either there is an expectation of rolls getting cheaper (since shorts are in loss and may be forced to roll) or long rolls are not going to happen. Barring adverse news I don’t expect latter to happen. So watch some counters like HDFC, Reliance, Baja Finance as well as Finserve, MM, Infy, etc.

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