FIIs cut bullish Nifty bets as rupee weakens

FIIs have sold index futures worth Rs 5,000 crore in the last five days

Foreign institutional investors (FIIs) have cut their bullish derivative bets on the National Stock Exchange’s benchmark Nifty index in the past five trading sessions, as sentiment turned wobbly following the decline in the rupee.

Brokers said foreign investors have also started creating some short positions in the Nifty and select stock futures to protect their portfolios in case of a steep fall.  

FIIs have sold index futures worth Rs 5,000 crore in the past five days, according to data from the Securities and Exchange Board of India (Sebi) data. Concern over a possible rollback in the US Federal Reserve’s monetary stimulus programme has resulted in the strengthening of the dollar against Asian currencies, including the rupee. Emerging market equities, including India’s, have attracted a portion of the money the American central bank has pumped into its banking system. Investors fear a stronger dollar could result in the reversal of these flows.

“There could be some amount of hedging, which is expected, given  the rally the market has seen,” said Vinay Menon, director-equity capital and derivative markets, JPMorgan.

These investors, which have poured in about Rs 82,000 crore since January, have net sold shares worth Rs 688 crore in the past five days. Analysts said about 60 per cent of the Nifty futures positions, rolled over to June when May contracts expired last week, have been squared off. (Click here for table & chart)

“Most of the positions that have been unwound are longs, which were carried forward to June,” said Siddarth Bhamre, head-derivatives, Angel Broking.

Hopes of continued FII flows into Indian equities had prompted traders to roll over their long positions when the May contracts expired. However, the rupee’s rapid decline caught them unawares.

The rupee on Thursday touched a one-year low of 57 to the dollar but recovered a portion of the losses before closing at 56.84 after Finance Minister P Chidambaram stepped in to talk up sentiment. The BSE benchmark Sensex shed 0.25 per cent to close at 19,519.49, after managing to erase most of the day’s losses. The Nifty ended almost flat at 5,921.40 points.

Investors and traders will closely watch the US employment report tomorrow, expected to determine the direction of the dollar in the near term.