Volatility may remain high ahead of F&O expiry

Year-end profit taking may continue to weigh on the domestic bourses in the near term. Volatility may rise over the next few days as traders roll over positions in the derivatives segment from the near-month November 2010 series to December 2010 ahead of the expiry of the November 2010 futures & options (F&O) contracts on Thursday, 25 November 2010.



The market has come off soon after hitting a record closing high early this month. Funds based in US and Europe follow calendar year as their accounting year. Year-end profit taking is likely as many stocks have clocked decent to strong gains this year.

On the global front, investors are keeping a watchful eye on events out of Ireland and a possible China policy tightening to cool inflation. Officials in Dublin are holding talks with European Union and International Monetary Fund representatives to reach a course of action to solve the current debt crisis. Ireland's finance minister, Brian Lenihan, said on Thursday, 18 November 2010, that the nation would be open to a bailout plan to shore up the banking sector. News that some sort of rescue plan was taking shape drove global stocks to gains on that day.

Among the major US economic data due next week are existing home sales for October 2010 on Tuesday, 23 November 2010, and durables goods orders and new home sales for October 2010 on Wednesday, 24 November 2010.

While global liquidity remains ample, a section of the market is worried that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 80000 crore from equity and debt issue over the next three to six months. Steel Authority of India and Indian Oil Corporation (IOC) are some of the state-run firms that are planning large share sales in coming months. The Indian Government is selling 10% of its 78.92% stake in IOC, while the company will issue new equity of 10% of existing paid up capital. The size of the follow-on public offer of IOC is pegged at a massive about Rs 19000 crore.

Other upcoming state offers include Manganese Ore India's IPO to raise up to $270 million, Hindustan Copper's $1.6 billion share sale, and Shipping Corp of India's $320 milion share sale.

According to one report, fund raising by way of initial public offerings (IPOs), follow-on public offerings (FPOs) and qualified institutional placements (QIPs) have totalled a record Rs 87733 crore in the year till date, beating the previous high of Rs 65344 crore in calendar year 2007.