Indian stock market: April F&O series ends with modest gains, offering limited arbitrage gains

Indian stock market: Nifty concluded the April F&O (futures and options) series with steady gains of over a per cent, indicating a stable market environment, offering limited gains for arbitrageurs.

The arbitrage gain, which is the profits earned by exploiting price differences for the same asset in different markets or at different times, depends on several factors including transaction costs, taxes, and the specific prices at which a trader enters and exits the positions.

The rollover analysis done by brokerage firm JM Financial reveals that at the end of the April series, market-wide rollovers stood at nearly 90 per cent, which is in line with its three-month average of 90 per cent.

While the market-wide rollovers, or moving from the current-month contract to the next one, were in line in the April series compared to the March series, annualised roll spreads of the top 50 stocks in April were lower compared to March, the brokerage firm observed.

Market-wide futures open interest (OI), which is the total number of futures contracts market participants hold at the end of the trading day or series, stood at nearly ₹3.98 lakh crore against nearly ₹3.87 lakh crore at the start of the April series, according to the brokerage firm.

Single stock futures rollover stood at 84 per cent in the April series which was lower than its three-month average of 93 per cent. Single stock futures open interest stood at ₹3.59 lakh crore as compared to ₹3.34 lakh crore at the start of the April series, JM Financial said.

Arbitrage trading in futures and options is popular among market participants.

As brokerage firm Motilal Oswal explains, in stock-futures arbitrage, market participants buy in the cash market and sell the same stock in the same quantity in the futures market. As the futures price expires at the same price as the spot price on the F&O expiry day, the difference becomes the risk-free spread for the arbitrageur.

Nifty gained over a per cent in the April F&O series, but the mid and smallcap spaces saw robust gains. The Midcap index rose nearly 5 per cent while the Smallcap index jumped nearly 10 per cent in the April series.

Foreign institutional investors (FII’s) were net sellers to the tune of $2.7 billion, while domestic institutional investors (DIIs) deployed $4.5 billion in the April series, as per JM Financial data.

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