CAPITAL PRESERVATION

Yesterday’ markets were virtually flat with both benchmark indices closing in the green by less than 0.5%. Yesterday could well have been representative of the entire month. After extreme volatility, the Nifty ended the July series with returns of 0.4%. If this figure seems disappointing, contextualise it with the fact that the Nifty provided a negative 12% return in the last series, and it is evident that the markets have recovered remarkably from the despondency in June.
The current series is different from the last one in many ways but, this to my mind, is the most important differentiator. We were moving along a curve of wealth creation till January, and then wealth erosion till June. This series, perhaps, will help us move towards capital preservation.
Rollovers were another differentiator in this series. Marketwide rollovers were at 79% vs 82% in the last series, and the Nifty rollovers were 65% vs 70% in the previous series. Rollovers on the Nifty is low because traders seem to be reluctant to take a directional call on the markets. The rollover on stock futures, too, seems mainly news- driven rather than sectoral calls. The theme for this rollover could well be a market that is paused without any clear directional call. Given that we have just come out of three months of steady losses on the index, this may not be as much of a disappointment. On stock futures, rollovers have been mostly news-driven. Bharat Forge, which came out with first quarter numbers that confirmed that the company was increasing its focus on non-auto clients, has seen extremely high rollovers at 95.5%. The steel pack has also seen good rollovers with Jindal Stainless leading the pack with 99% rollover and Tata Steel at 84%.From the banking pack, ICICI Bank had rollovers of 84%, SBI 75%. J&K Bank, which has the lowest liquidity of all F&O stocks, had rollovers of just 53%.
The put-call ratio, which is an extremely important mood indicator, is healthier now than it was in the last series. When we go into trade today, it will be with a PCR of 1.30 vs. 1.10 in the last series.
At worst, this rollover is an indifferent one - both in terms of performance as well as participation. At best, it’s a clean slate.