Spot Prices: Fig-1 depicts the spot price

movements of ICICI Bank from June 1, 2022, &

June 1, 2023. The stock exhibited a rising trend,
surging from June 16, 2022, to reach a peak of
Rs. 954. Notably, the company's robust financial
performance contributed to this upward
trajectory. The graph reflects the stock's upward
trajectory driven by a 39.1% YoY growth in net
income and a 26.45% increase in ICICI Bank's
2023 annual net income to $4.255B.
Additionally, the net NPA ratio improved to
0.48% by Mar 31, 2023, compared to 0.55% on
Dec-31, 2022, and 0.76% at Mar-31, 2022,
despite minor downward influences from Q3
FY23 results and government policy shifts.

Futures Prices & Open Interest: In May '23, data was collected and analysed (Figure 2), focusing on the
contract expiring on 25th May '23, it's evident that the near month contract had the highest open interest
throughout the month, followed by the next month's contract (Expiry 29-Jun-23) with the second-highest
activity, and the far month contract (Expiry 27-Jul-23) with the lowest activity. As the expiration date
approaches, near month contracts show a downward trend due to more liquidity while new contracts for the
next month shows upward trend. In (Figure 3), concerning the futures contract expiring on 25th May '22,
the spot and future prices of the near month converge at maturity, indicating reduced basis risk. However, no
such convergence is observed for the next month's contract.

Volume of Contracts traded: Data was

gathered for the month of May’23 for near month
contract (Expiry 25-May-23), next month
(Expiry 29-June-23) and far month (Expiry 27-
Jul-23) futures contract and plot the graph. There
was a sharp rise seen in the near month contract
(Expiry 25-May-23) on 5th May 2023 where
volume of the contracts rose to 3.23 Crores. This
could indicate that there is more interest in the
market. This could be due to the increasing
volatility of the market, the increasing demand
for commodities, or both. The relatively low
volume of contracts traded since May 13th could
indicate that investors are cautious about the
market.
Basis: Information was collected spanning
from May '23 to July '23. The cost of carry
model was employed to calculate the expected
futures cost, showing a strong 99.2%
correlation with real futures prices. This
alignment is evident in the graph depicting the
cost-of-carry model fit. Notably, as the contract
approached maturity, the basis exhibited
strengthening trends. The negative basis
indicated that spot prices were below futures
prices. Given this initial negative basis, traders
might consider short-selling futures. As the
basis strengthens, positions improve, resulting
in gains for hedgers.

Hedge Ratio: Data collected from May '23 to July

'23, the minimum variance hedge ratio was
obtained. This ratio depends on the relationship
between changes in the spot price against the
changes in future price. The correlation coefficient
was found to be 0.99. The standard deviation for
changes in spot price was and that of changes in
futures price was . We can see that the slope
(Hedge ratio) is 0.911. This means that the size of
the futures position should be 91.1% of the size of
the hedger’s exposure in a three-month hedge.

Arbitrage: We used a model to compare

predicted prices with actual future market prices.
Most of the time (90%), the model showed that
prices were lower than actual, and only
occasionally (10%) higher. This means there are
very few chances for arbitrageurs to make quick
profits. When trying to benefit from these
chances, it's important to factor in the costs of
making transactions. Figure 7 indicates that there
is a substantial amount of trading activity,
measured in crores (indicating high activity and
monitoring). Since the data is daily, there's
limited opportunity to capitalize on arbitrage due
to the high level of market activity.

Company: ICICI Bank

Period Studied: 2nd May 2022 – 27th July 2022
Analysed by: Devansh Gaur (22A1HP063)
Source: www1.nseindia.com, www.rbi.org.in
Disclaimer: The analysis presented here is an academic assignment and is the opinion of the author. It
should not be considered as a piece of investment advice. The author is not responsible for any positions
taken in the market based on the above analysis.