Divergence in foreign and local bets hints at a volatile future
Foreign fund managers are cautious about Dalal Street's prospects amidst election uncertainty, while domestic investors are optimistic about Nifty. Global interest in Chinese stocks affects foreign investments. FPIs, retail investors, and HNIs hold divergent positions. Concerns over NDA performance and market valuations impact strategies. Market indicators signal potential risks and opportunities.
Mumbai: A tug-of-war between overseas fund managers and domestic individuals over Dalal Street's near-term prospects is at play.Foreigners are holding record bearish derivative bets on the as uncertainty over the outcome of the is prompting them to hedge their portfolios here. Signs of renewed global investor interest in battered Chinese and Hong Kong stocks could also be driving them to be cautious about , said analysts. Crossing swords with the sophisticated foreign institutions are domestic individual investors, who have created aggressive bullish wagers, underscoring their continued optimism over the .
The Nifty has gained 2.5% in the past week while Foreign Portfolio Investors () retained their elevated short positions in futures and options through the third week of May.
According to analysts, the net bearish positions of FPIs in index futures stood at a record 2.46 lakh contracts last weekend. These investors net sold shares worth ₹24,500 crore so far in May after selling to the tune of ₹8,671 in April.
The client-side-including retail and high-networth investors (HNIs) - held 2.7 lakh contracts at the end of the week.
"We have seen record levels of aggressive positions from FPIs, being net short on index futures, while the client side has been net long, which may lead to higher in the markets in coming days," said Sahaj Aggarwal, head of research at . "However, record short positions may not be an indicator that the markets would move only in their favour."
Concerns that the BJP-led NDA may not secure as many seats as anticipated earlier is one of the main reasons for the bearish tilt in FPIs bets on Indian equities. With domestic market valuations are also elevated, are also speculated to be moving part of the money from India to a cheaper China.
Some analysts said the recent change in the lot size of Nifty derivative contracts could be creating a perception of aggressive bets.
"The numbers are very high if we compare with the historical data, but that does not show the true picture as the lot size of Nifty has changed recently. So, it is prudent to see the figures in percentage terms where they (FPIs) have only 28% positions on the long side," said Ruchit Jain, lead research analyst at . "Historically, their positions are considered short-heavy when this ratio falls below 20%."
Nonetheless, widely-tracked market indicators have been flashing caution of late. India VIX, or the Index, a fear measure of the market, has surged 52% in the past month to 20.5, suggesting traders see near-term risks to the market.
Some analysts said elevated levels of by foreigners could be a contrarian signal for the market.
"High levels of FPI shorts in index futures (in range of 68-73% of their total index futures open interest) historically has been the precursor of a many a time," said Sriram Velayudhan, senior vp of alternative research, . "As of last Friday, it stood at 72%."
Jain of 5Paisa.com said are optimistic because the Nifty has managed to hold above an important support level of 22,000-21,800. The index closed at 22,502 in a special trading session on Saturday.
"If the uptrend continues, then FPIs could look to cover the shorts which would add fuel to the rally; and the index could attempt to rally towards new highs soon," said Jain.
Source: Stocks-Markets-Economic Times
