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Open interest in India’s S&P CNX Nifty Index futures declined to a five-year low as investors held off taking new bets after government data showed Asia’s third-biggest economy is slowing.
Open interest, or the number of contracts outstanding, in the Nifty futures on the National Stock Exchange of India Ltd. totaled 321,725 on June 1, the lowest since Feb. 2, 2007, data compiled by Bloomberg show. It was at 338,313 yesterday. The index rose 0.3 percent to 4,863.3 at close in Mumbai.
A private survey showed on June 1 that manufacturing in India slowed, a day after the government said economic growth slowed to a nine-year low in the March quarter. Foreign funds turned net sellers of domestic shares for a second month in May, reducing their holdings by $273 million, data from the market regulator show.
“Weak economic conditions are weighing on sentiment and affecting investments in stocks,” Siddarth Bhamre, head of derivatives at Angel Broking Ltd., said by phone from Mumbai. “Investors are scared to take longer-term bets.”
The value of futures contracts held by foreign investors was 67.54 billion rupees ($1.2 billion) on May 31, the lowest level since February 2009, the data show. It was at 78 billion rupees yesterday.
While trading bets have dropped locally, open interest in Nifty index futures traded on the Singapore Exchange Ltd. (SGX) has climbed after India in March proposed to introduce the General Anti-Avoidance Rule, or GAAR, to curb evasion of taxes through misuse of tax treaties. The government last month delayed the plan by a year after the proposal stoked concern foreign flows to the country will decline.
“While GAAR has been deferred it is there in the back of mind of some investors,” Angel Broking’s Bhamre said. “GAAR is not applicable in Singapore and some investors may prefer to trade Nifty futures there because the market has more matured participation and liquidity.”
Open interest in Nifty futures traded in Singapore totaled 278,974 yesterday, up from 237,376 on March 30, data compiled by Bloomberg show. Each SGX futures contract equals two traded on the Mumbai-based National Stock Exchange. SGX began trading Nifty futures in 2005.
The 50-stock Nifty index fell 13 percent from its Feb. 21 peak as the rupee fell 6 percent versus the dollar last month, Asia’s worst-performing currency.
India’s record trade deficit “has weakened our balance of payments and the rupee is beginning to fall, as a consequence of which overseas investors are staring at losses and pulling out,” P. Jayendra Nayak, chief executive officer of Morgan Stanley (MS) India, told Bloomberg UTV yesterday. The withdrawals weaken the currency further and “it is important that we have a policy that gets us out of these vicious cycle,” he said.
The total derivatives turnover on the National exchange totaled 798 billion rupees on June 1, the lowest level since May 14, and reached 815 billion rupees yesterday, according to data compiled by Bloomberg.
The Nifty has climbed 5.2 percent this year and trades at 12 times estimated profits, the lowest level in more than three years. That compares with a multiple of 9.7 times for the MSCI Emerging Markets Index.
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