Indian markets could face increased volatility when the markets open tomorrow (Monday, June 8) as record retail participation in stock futures coincides with a deteriorating global risk environment, according to a note from Kotak Equities.
The brokerage highlighted that US equities witnessed a sharp sell-off on Friday, June 5, led by semiconductor stocks after stronger-than-expected jobs data pushed the US 10-year Treasury yield above 4.5%. The rise in bond yields has renewed concerns over elevated borrowing costs and their potential impact on global economic growth.
Against this backdrop, Kotak expects Indian markets to open weak on Monday, June 8, mirroring the negative sentiment from global markets. The brokerage cautioned that the Nifty could slip below the key support zone of 23,100, which may trigger a deeper correction towards the 22,300 level.
A key concern flagged by the brokerage is the sharp rise in retail participation in the futures market. According to the note, retail positioning in stock futures has climbed to a record level of nearly ₹1.87 lakh crore, equivalent to approximately $19.7 billion. Such elevated positioning increases the risk of a long liquidation phase if market sentiment weakens further.
Long liquidation occurs when investors holding bullish futures positions are forced to exit as prices decline, often accelerating downside moves and increasing volatility. Kotak believes that stocks with high retail long exposure could witness sharper declines if such an unwind gathers momentum.
The brokerage identified several stocks where retail participation in long futures positions remains elevated. These include ICICI Bank, Reliance Industries, Bharti Airtel, State Bank of India, Mahindra & Mahindra, NTPC, Maruti Suzuki, Sun Pharma, Indus Towers, Canara Bank, TVS Motor, Punjab National Bank, Bank of Baroda, NMDC, IDFC First Bank, Yes Bank, AU Small Finance Bank, Gujarat Narmada Valley Fertilizers & Chemicals, Varun Beverages, Bandhan Bank, One97 Communications (Paytm), CG Power, Max Financial Services, Indian Oil Corporation, Info Edge, Delhivery, Godrej Consumer Products, NBCC and Bank of India.
Kotak noted that some sectors appear particularly crowded from a retail positioning perspective. PSU banks, private banks, automobiles and FMCG companies currently account for a significant portion of retail futures exposure and could therefore be more vulnerable in the event of a broad-based unwinding.
While the brokerage’s caution is largely driven by positioning rather than fundamentals, it believes investors should closely monitor market support levels and global developments, particularly movements in US bond yields, which have increasingly become a key driver of global risk appetite.
The note comes after a volatile start to June, with markets balancing expectations of earnings growth against concerns surrounding global interest rates, economic growth and geopolitical developments.
Disclaimer
The views and opinions expressed are those of the brokerage and do not represent the views of this publication. This article is for informational purposes only and should not be construed as investment advice. Investors should conduct their own research before making investment decisions.