Savvy proprietary traders are exploiting a pricing anomaly in India's information technology heavyweights through reverse arbitrage strategies. According to market experts, this strategy allows traders to lock in high single- to double-digit annualized gross returns with literally zero market risk. The strategy involves borrowing IT stocks from retail high-net-worth investors and foreign portfolio investors through NSE's stock lending and borrowing mechanism (SLBM) for a fee of 3-5% of the share value for periods ranging from one to two months or more.
The opportunity has emerged because futures contracts on IT stocks have slipped to discounts to their underlying shares after the sector significantly underperformed the benchmark Nifty over the past 15 months through June. As reported by market experts, this was largely due to money moving out of domestic IT companies into overseas firms such as Samsung, Nvidia, TSMC and Microsoft, connected with the AI trade. Wipro was the most borrowed stock among 396 securities in June with 122.43 million shares outstanding, followed by Infosys with 29.15 million shares, HCLTech at 15.06 million shares, and TCS at 5.34 million shares. Together, the four IT stocks accounted for more than half the 329.97 million shares borrowed that month.
According to Kotak Securities, returns for such reverse arbitrage trades should be around 8-10% annualized to account for various costs including lending fees, exchange charges, securities transaction tax and cost of capital. After accounting for costs, net returns could be mid-single digits or higher. The strategy involves selling borrowed shares in the cash market and simultaneously buying corresponding futures contracts at a discount, then taking delivery through the futures position and returning borrowed shares to lenders.
As reported by market data, Wipro's underlying shares traded at ₹174.24 against August futures at ₹169.83, implying a spread of 2.5% for a month and a half, or 20% annualized returns. Similarly, HCLTech shares traded at ₹1,175.4 against August futures at ₹1,161.9, implying a spread of 1.14% by August end, or 9.12% annualized. The ₹4.41 per share spread is locked in regardless of the rate at which Wipro settles by August expiry on the 25th of that month.
According to Geojit Financial Services, the reverse arbitrage trend is expected to persist in most big IT counters due to the global AI trade over the next few quarters. The returns generated by both HCL and Wipro exceed the Nifty's negative 5% return in FY26 or 6.9% generated so far this fiscal through June. This strategy allows traders to legitimately short stocks by borrowing them first, as SEBI does not otherwise permit naked short-selling.
