FIIs' F&O positions peak to 27%

Foreign institutional investors (FIIs) have build up huge positions in the futures and options segment of the capital markets.

The cumulative FII positions, as a percentage of the total gross market position in the derivatives segment, is at an all-time high of 27 per cent as on March 16, 2005.

Vijay L Bhambwani, derivative strategist and chief executive officer, Bsplindia.com, said, "The outstanding open interest has hit a new high, the FIIs outstandings are near Rs 11,000 crore and still rising."

Analysts tracking the derivatives segment said, FIIs are hedging themselves on the long positions in the cash market. FIIs have been buyers on each single day of the current month, except in the last two trading sessions when they were net sellers in the cash market.

Karun Mutha, head of derivatives risk and strategy at IL&FS Investsmart, said: "There could be two reasons why FIIs' open interest position is very high. One is that, due to the low cost of carry, FIIs have been operating a lot of arbitrage. As a result, FIIs' open interest may increase when they buy stocks in cash and sell stocks in futures. Secondly, FIIs are hedging themselves on the long positions in the cash market, which is visible from the fact that the FIIs have been net sellers in the futures market."

FIIs have been net sellers in the F&O segment to the extent of Rs 564.53 crore in index futures and Rs 143.92 crore in stock futures as on March 15, 2005.

As on March 16, 2005, net selling was Rs 51.89 crore in index futures and Rs 91.36 crore in stock futures.

A derivatives strategist with a domestic broking firm said, FIIs have been hedging their purchases being made in the cash market.

Though FIIs are bullish on specific stocks, they are sceptical about the broad market indices, therefore, they hedge themselves by selling index futures which is also visible from the fact as hectic activity is seen in the buy side of Nifty put options.