Derivatives data say FIIs are very bullish

Foreign institutional investors (FIIs) are extremely bullish on the Indian markets and one indication of this is their activity in the derivatives segment. They were long on Nifty futures and on Tuesday had bought Rs 200 crore of Nifty futures.

While this might not be an immediate impact of the Budget announcements "" allowing FIIs to pay collateral other than in cash and allowing speculative transactions in derivatives to be set off against legitimate gains in business or otherwise "" the fact is that with 30 per cent share of the transaction in the derivatives segment they are driving the market. "Their transactions is view-based," said a dealer with a prominent brokerage.

The market seems to be on a correction mode, at least in the derivatives segment and calls and puts are underpriced now. Last week, the implied volatility in puts was at a high of 28 per cent, while calls were at 23 per cent.

This has since come down to between 20 to 22 per cent levels, which dealers say is much more "realistic." The implied volatility has come down because investors are now selling. There was a build-up of positions ahead of the budget and the positions are now being reversed.

The maximum traded contracts in the options segment were the puts at 2100 and 2150. Investors are also writing calls at the 2150 levels, which means that the Nifty will be finding support at that level. Dealers said investors are now shorting.

In fact, short positions are building up in index futures and figures on the Sebi website on FII trading patterns show that they were shorting the market on Wednesday with short positions building up in index futures. At present the impact cost in the cash market is much higher than that in the derivatives segment.