India stock index futures reflect correction fears

he discount on India's benchmark stock index futures to the cash market widened on Wednesday, as traders expecting a correction from the current record levels went short on the underlying, analysts said.

The long interest seen in recent days was unlikely to continue, they said.

"It looks overbought," said Amit Hiremath, fundamentals and derivatives analyst of IDBI Capital. He pointed to the rising cost of carry on index futures, currently at 19.4 percent, as a case in point.

Another analyst said the options market presented more evidence of an impending correction, with the implied volatility in index puts going up and reaching 20.4 percent on Wednesday.

This is an indication of the degree by which investors expect the market to swing.

"A certain imbalance has been created. Both these factors taken together indicate that there will be either a correction or a fall," Siddharth Bhamre, an analyst at Angel Broking, said.

He, however, ruled out a Nifty fall of more than 150 points and said the index could see support at 4350 levels.

The near month contract closed with a discount of 18.25 points at 4,481.30 points, compared with a discount of 15.5 points in the previous session.

The benchmark 50-share NSE index closed up marginally at 4,499.55 points.