• JUNE 8, 2000

What do higher carry forward charges imply?

That carry forward charges are on the rise is doubly important for investors. First, it signifies that buying interest is on the rise. And second, higher rates themselves offer an investment opportunity.

With respect to carry forward charges the BSE has seen it all this year. Early in January carry forward positions rose in excess of Rs 40 bn. This drove up rates to over 30%. Then came the sell off in the markets and the consequent erosion in long positions. At its low badla rates were a pathetic (attractive for some!) 1% per annum. Now, however, things have once again started to look up.

Two weeks back, the BSE witnessed a near doubling of rates to 12%. Last week the carry forward charge was put at 11%. However what is interesting to note is that the corresponding charge on the NSE (Advanced Lending and Borrowing Mechanism - ALBM) has risen very sharply this week. The mean is well in excess of 20%.

Higher rates result from, as economics would tell us, a demand supply mismatch. In recent days there has been no dramatic alteration in liquidity. If at all there has been a marginal cut back in liquidity by the RBI in view of its initiatives to prop up the value of the Indian Rupee. Demand for securities on the other hand seems to be on the rise. Momentum investors have been actively building up long positions. The markets have risen approximately 800 points from their recent lows. The sentiment is bullish (though some are still 'cautious').

So the rising carry forward charges are definitely telling us something. While it is difficult to say with surety whether or not the markets will rise, higher charges nevertheless offer an interesting investment opportunity by themselves.

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