Nervous FIIs unwind bullish Nifty positions

The total value of bullish Index futures bets by FIIs fell to Rs 2,000 crore on Friday

 

Foreign institutional investors (FIIs) have cut bullish derivative bets on India, as prospects of emerging market equities have turned somewhat uncertain after the US Federal Reserve started rolling back its stimulus in January. Analysts said these investors had been unwinding their long positions in Nifty futures contracts since December 18, when the Fed had first announced a cut in its monthly stimulus programme. But they were yet to create too many short positions, they added.

On Friday, the total value of bullish index futures bets by FIIs fell to Rs 2,000 crore from Rs 11,000 crore on December 9, when the unwinding of long positions had picked up pace.

DECLINING INTEREST

• FIIs have been unwinding lost positions in the Nifty since early Dec 2013. But few short positions are being created on the Nifty
• Rs 11,000-cr worth of FII net-long positions in index futures was seen in December
• The net-long positions in index futures are now down to Rs 2,000 cr
• Foreign investors are more pessimistic on Bank Nifty where open interest is at a six-month high
• The Nifty likely to trade within the 5,900-6,250 range

“FIIs have not only been unwinding long positions, but also creating fresh short positions since early-December. We have seen about Rs 7,000 crore of long positions being unwound and around Rs 2,000 crore of fresh shorts being created,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.

In January, foreign investors net sold shares worth Rs 141 crore. So far this month, they have been net sellers by Rs 1,808 crore, according to provisional data from the exchanges on Monday.

“FIIs are selling in the cash market. There is very little confidence on the direction of the markets. We believe the markets will see a slow and steady decline,” said Siddharth Bhamre, head of derivatives, Angel Broking.

Analysts said the cut in bullish bets on the Nifty was sizeable, indicating the lack of confidence in the market. Market participants were betting on a surge ahead of the Lok Sabha elections. “The downtrend we have seen in the market has been severe. Recently, the important support-level of 6,120 was breached with a huge gap, indicating the short-term trend was one of decline,” said Shubham Agarwal, vice-president and senior technical analyst (equities), Motilal Oswal Securities.

Analysts said the Nifty would likely trade at 5,900-6,250 in the near future. Any intermittent pullback in the market would be temporary, they added.

The build-up of long positions by FIIs had been declining since September, some analysts said.

“The bank Nifty opened the February series with a six-month-high open interest, while the Nifty opened the February series with a three-month-low open interest. This indicates FIIs are more bearish on the bank Nifty than the Nifty,” said Amit Gupta, head of derivatives, ICICI Direct.

Anand James, head of the technical research desk, Geojit BNP Paribas Financial Services, said, “The fact that RBI first held steady and then increased rates might have played on FIIs’ minds, which is why we are seeing this unwinding of positions. Besides, the recent election frenzy had pushed up prices and globally, too, there was a pullback. So, that short run-up may also have led to the sell-off.”