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After trading at a premium in the first-half, the March Nifty futures contract closed at a discount to the current month contract, indicating that traders rolled over short positions to the next month, adding to the bearish tone of the market.
The Corona virus outbreak to other parts of the world has roiled global markets.
The March futures contract closed at 11696.1, 1.9 points below the February contract’s 11,698.
The premium between the near month futures and next month is normally 35.
Even if some companies with large promoter holding pay dividends to shareholders in March, the premium would narrow and not turn into a discount, which has happened because of short rollovers.
At opening on Wednesday, the March contract traded at a 27.4 point premium to the February contract.
“Normally, the Nifty next month futures contract trades at a premium of 35 to the near month contracts at the time of rollover.
But this time it is trading at a discount of 2.
Even after adding the expected dividend of 16 points in March, the March futures have only 14 points of premium with February futures.
This means the shorts are rolled into March series as well.
The companies with high promoter holding are likely to announce early dividend in March before the new budget proposal,” said Amit Gupta, derivatives head at ICICI Securities.
Rajesh Palviya, derivatives head at Axis Securities, also feels traders would have initiated short positions in March, causing the contract to trade at a discount.
“The fears of Corona virus spreading are spooking global markets with an impact on emerging markets, like India,” said Palviya.
“The March contract traded at a premium (to February) during much part of the day but as fears of the Corona Virus spread to global markets, the March contract ended at a discount.”
The range for the market in March is at 11,800-12,000, as indicated by the March Nifty options at closing on Wednesday.
The market closed below this level, at 11,678.5, and if the situation worsens because of global fears around the virus, analysts like Kunal Shah of Indiabulls Securities and Rohit Srivastava, founder IndiaCharts, expect the Nifty to get support at 11,500-11,550.
The 11,550 level is the 50 per cent technical retracement between the low of 10,670.25 on September 19 last year and the 12,430.5 on January 20, 2020.
The 200-day moving average of 11,682.8 was breached but some analysts expect the market to get support and stage a short-term bounce.
