FPIs close out record bearish bets on benchmark indices
MUMBAI : Days before the US Fed meeting on Wednesday, foreign portfolio investors (FPIs) turned marginally bullish on Nifty and Bank Nifty derivatives contracts, reversing a record bearish stance from just over three weeks ago. Analysts are extrapolating this to mean the market has priced in the worst-case scenario of the Fed not taking a pause on rate hikes.
On the flip side, if the Fed hints that it’s done with rate hikes, the sentiment boost to emerging markets like India could extend the rally underway since 20 March toward Nifty’s record high of 18887.6 achieved on 1 December.
From being 92% net short on March 22, FPIs have become net long 51% on 2 May. Data on 3 May positions wasn’t available until press time. The covering of bearish bets over the period coincided with FPIs buying shares worth ₹11,631 crore in April and ₹9,461 crore in May so far, according to NSDL.
On 3 May, FPIs purchased a provisional ₹1,338 crore shares as DIIs offloaded shares worth ₹584 crore. NSDL hasn’t updated data for 3 May.
“After holding a record high short position of 92% on index futures in March, FPIs covered this and turned net long 51% as on 2 May,” said Santosh Pandey, president and head, Nuvama, Professional Clients Group. “This implies hot money having priced in the worst-case scenario of the Fed not pivoting. On the flip side , if there is indeed a decisive pause, the sentiment boost could take the market closer to the December record high of 18y,887.6.”
Since 22 March, when FPIs held the record high short positions through 2 May, the Nifty gained almost 1,000 points or 6% after their cash buying and closing out of their short positions.
“The market seems to have priced in the worst, looking at the FPI action,” said Rohit Srivastava, founder of IndiaCharts, a data analytics firm. “A decisive pause by the Fed would be a huge sentiment booster.”
Interestingly the 10-year benchmark government bond yield ended down 9 bps at 7%, the lowest level in a year Madan Sabnavis, chief economist at Bank of Baroda, attributed this to expectation of Fed pivoting after announcing a last cut in this series, crude oil price falling to $75/barrel, no surprise expected either in global markets or in India, and inflation trending downwards.
The Fed has raised its benchmark Fed Funds Rate from near zero since March 2022 to a 4.75-5% range currently. Markets have discounted a 25 bps hike after which Fed is expected to announce a decisive pivot.
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