FPIs’ derivatives bets signal profit booking for now
MUMBAI : An important reading pertaining to foreign portfolio investments in index derivatives hit a four-year high on 6 July, shortening the odds of a correction in the near term, as has been seen on previous occasions, analysts said. They were, however, quick to add that any 300-400 points dip on Nifty would be a good buying opportunity. FPIs’ cumulative net buying on futures contracts based on Nifty and Bank Nifty hit a four-year high of 102,828 on 6 July.
This was the highest net purchase since 26 April 2019, when they held 126,827 contracts. Incidentally, FPIs’ net selling on index futures hit a record high of 196,378 contracts on 22 March this year. That coincided with the Nifty low of 16,829 on 20 March.
Rising sentiment on the back of healthy earnings and moderating inflation subsequently resulted in them turning buyers in the Indian stock market after two years of selling ₹ 1.4 trillion in FY22 and ₹37,632 crore in FY23. The purchase of ₹1.25 trillion so far this fiscal (FY24) has catapulted the Nifty 16% from its March low to a record high of 19,512.20 on 6 July. Along with the cash market buying, they raised their bets on Nifty and Bank Nifty (index) futures contracts, which saw their cumulative holdings hit a four-year high.
Whenever FPI contract positions hit extremes on either side, markets tend to top or bottom. In the current scenario, the reading at a multi-year high has given rise to cautionary calls by analysts on profit booking. The analysts don’t see a dramatic correction below 19,000 or 18,887.60, the previous record high hit on 1 December 2022.
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