FIIs are cutting naked short positions ahead of the expiry of Nifty March futures contract next week.Nifty March futures, which were traded at a discount till yesterday, closed at a premium of 5 points at 3,284 over the spot Nifty of 3,279. So, why did this happen only four days ahead of the expiry of the March contract?Flashback - on 7-8 March 2006, FIIs - may be hedge funds, international institutions or brokerage houses - had gone short on the Indian bourses to the tune of over Rs 4,000 crore. The FIIs had sold 52,800 Nifty futures on March 7 at an average price of 3170 and 1,00,809 Nifty futures again on March 8 at an average price of 3127. The logic - The Nifty, during the last 10 months, had risen by nearly 1,300 points or 69%. They shorted the index futures anticipating that the market is likely to fall this March too, like all the previous March months (during the last five years) due to a host of reasons like post-Budget fizz-out or advance tax payments, and could cut their positions the moment the Nifty fell 7-10%.Caught short - This time, they went short in the futures market without actual delivery in the cash segment (naked short sales). To their surprise, the Finance Minister, in Budget 2006, did not see a rational for unnecessary changes.Other FIIs continued to buy at the Indian bourses along with domestic mutual funds, which have close to about Rs 22,000 crore of surplus money from new fund offers (NFOs).The market absorbed the shock of FII shorting, and moved ahead despite several international reports (Morgan) and others that it would fall.FIIs which had shorted the Indian market had only two options - either carry forward or cut short. They are cutting their positions now as there is no rationale for carrying the short positions to next month.THE RESULT - Nifty Futures is at a premium four days ahead of the expiry.Bull operators, sensing short positions, are now pulling up index heavy weights till the time they can cut short positions worth Rs 4,300 crore.
