10 stocks present opportunities for reverse arbitrage

Tags: News

Big mismatches between spot & futures prices draw investors

Ten stocks, including largecaps like BHEL and Steel Authority of India (SAIL), have caught tra­ders’ attention in an otherwise lacklustre market, as their futures prices have fallen below their cash market prices, creating interesting reverse-arbitrage opportunities for investors.

According to Kotak Securities, these stocks are trading cheaper in the futures market compared with their spot prices, drawing investors to make a neat profit by selling the stock in the cash market and buying it in futures.

Trading volume has been decent on these counters, allowing investors with a good opportunity for reverse arbitrage, said an analyst.

The reverse arbitrage is as high as 2.78 per cent in the case of SAIL, where the stock is quoting at Rs 66.55 in the spot market and at Rs 64.75 apiece in the futures market.

For Syndicate Bank, the reverse arbitrage is 2.06 per cent, as the stock is quoting at Rs 93.95 in cash market and at Rs 92.05 apiece in the futures market.

“These are straight arbitrages and investors can easily buy them in futures and sell in cash,” said an analyst with Kotak Securities, who in a report titled "Straight Arbitrage" spotted these stocks earlier on Tuesday.

The turnover on these counters is significant in both cash and futures markets, thus offering enough depth for such trade.

Some other reverse-arbitrage opportunities have arisen on the counters of Allahabad Bank, Indian Overseas Bank, Andhra Bank and SAIL.

Allahabad Bank shares are quoting at Rs 93.10 in the futures market, 1.99 per cent lower than the cash market price of Rs 94.95 apiece. In the case of BHEL, the futures price is 2.17 per cent lower at Rs 158.75 apiece compared with the cash market price of Rs 162.20 apiece.

In Indian Overseas Bank, the reverse arbitrage stood at 1.35 per cent, as its futures price is quoted at Rs 48.05 compared with the cash market price of Rs 48.70 apiece. For Andhra Bank, the reverse arbitrage was at 2.04 per cent, as it quotes at Rs 62.50 in the cash market compared with Rs 61.25 apiece in the futures market.

Smart investors look for such mismatches between futures and cash market prices to make a killing.

Big stock brokers also use algorithmic trading to find such mismatches in cash and futures prices and gain from them, said an analyst, adding, “Such arbitrage opportunity would not arise in a perfect market.”

In the case of Union Bank, the reverse arbitrage is 1.88 per cent, as its futures price is lower at Rs 120 compared with the cash market price of Rs 122.25.

Other stocks where reverse arbitrage opportunities exist include Oriental Bank of Commerce (-1.70 per cent; stock price Rs 200.15, futures price Rs 196.80), National Mineral Development Corporation (-0.88 per cent; stock price Rs 138.30, futures price Rs 137.10) and Canara Bank (-1.74 per cent; stock price Rs 256.65, futures price Rs 252.25).

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