Futures premium and discount: what basis tells you

When NIFTY futures trade above the spot index, the future is at a premium; below it, a discount. That gap — the basis — is one of the cleanest reads on leveraged positioning available on NSE, because futures are where the leveraged money sits.

Basis is just futures minus spot

Futures premium and discount are the same number seen from two sides. Basis equals the futures price minus the spot price. If NIFTY spot is at 24,000 and the current-month future trades at 24,060, the basis is +60 — a 60-point premium. If the future prints 23,970, the basis is −30 — a discount. On NSE this futures-spot spread updates tick by tick, the entire session, for NIFTY, BANK NIFTY and every stock future.

Some premium is normal and carries no information at all. That baseline comes from cost of carry — the interest cost of funding a position in the underlying until expiry, minus any dividends along the way. Add that carry to spot and you get fair value: the price at which holding the future and holding the index are financially equivalent. Arbitrage desks keep the future tethered near this level, which is exactly why deviations from it are informative.

Deviation from fair value is the read

The market does not pay above fair value, or sell below it, for free. Someone has to want leveraged exposure badly enough to accept a worse-than-arbitrage price. That is why persistent deviation maps onto positioning:

• Premium above fair value: futures buyers are paying up for leveraged long exposure — demand for longs exceeds what carry alone explains.
• Discount below fair value: sellers are accepting less than the arbitrage-neutral price — consistent with leveraged short positioning or heavy hedging pressure.
• Basis expanding while price rises: leveraged money is participating in the cash move, not just watching it.
• Basis shrinking on a rally: the cash market is moving up while futures traders decline to follow — the leg higher lacks leveraged sponsorship.

Intraday basis drift

Beyond the level, the drift of basis during the day is a useful second read. When spot pushes to a new session high and the basis widens with it, the futures market — the leveraged market — agrees with the cash move. When spot makes that same high while the basis quietly compresses, the data shows leveraged participants selling into the strength rather than chasing it. Neither pattern decides what happens next; each describes who is participating in the move as it happens, which pairs naturally with an order-flow read of the same tape.

Expiry convergence

One mechanical effect to keep separate from all of the above: as expiry approaches, carry shrinks because there is less time to finance, so fair value drifts down towards spot. At settlement the future and the index must meet. A shrinking basis in expiry week is therefore mostly mechanics, not opinion — only a basis that resists converging, or flips violently across zero, is telling you something about positioning under stress.

Finally, the compliant framing matters as much as the maths. Basis is descriptive data: it shows how leveraged participants are currently priced relative to fair value, and nothing more. It is not advice, and it does not tell anyone what to trade. Platforms like TBTflow display basis analytics as context — the interpretation, and every decision that follows from it, stays with you.