As the Bombay Stock Exchange's bellwether Sensex and the S&P CNX Nifty continue to scale new heights on a daily basis, the total open interest position in the futures & options segment has more than doubled in the last three months to Rs 51,146 crore.
This gives a strong indication that the stock market rally may continue for some more time.
Significantly, the open interest position of foreign institutional investors has come down from about 70 per cent in the first day of the current month contract (on October 27) to 57 per cent on Friday, showing an increase in domestic participation in the derivatives segment.
"I do not think retail investors have come back to the F&O segment. This could be due to increased participation by domestic institutions and operators," said an analyst with Techno Stocks.
The doubling of the open interest position did not warrant a caution because the other related data such as the implied volatility and the cost of carry were much below the July-August levels, Zeal Mehta, derivative analyst with Emkay Stock & Securities, said.
The implied volatility, a key indicator of an imminent correction, stood at a comfortable 18 per cent, compared with the July-August average of 27-28 per cent, Mehta added.
The total open interest position in value terms stood at Rs 32,400 crore at the beginning of the current F&O cycle.
Open interest has been gathering momentum after the market witnessed a swift rollover in the November contract.
The robust second quarter results saw the open interest position building up and during the last 11 trading days it has gone up by 58 per cent or Rs 18,750 crore, from Rs 32,400 crore on the first day of the November contract to Rs 51,146 crore on Monday.
The Techno Stocks analyst also agreed that the current data pointed to a strong bullish trend. On the National Stock Exchange, the market breadth was positive with 548 advances versus 331 declines.
The market breadth capitalisation (market turnover of advancing stocks versus declining stocks) was positive on Monday and even on Friday when declining stocks beat advancing stocks.
The put-call ratio at 1.5 also indicates that the market is in a comfortable territory.
