FPIs slash bearish bets ahead of Union budget, set stage for rally
MUMBAI : Foreign investors have closed out almost all of their bearish bets on index futures since the day of the election results, powering Nifty and Bank Nifty to historic closing highs. From holding the second-highest cumulative net short positions of 355,379 contracts on 4 June, they held just 24,415 short contracts on 14 June. The highest net shorts they held were 392,756 contracts on 22 March.
Analysts now believe foreign portfolio investors (FPIs) may turn buyers of Nifty and Bank Nifty futures in the run-up to the Union Budget session later this month, sparking an extended rally in both indices. FPIs held the second-highest net bearish index futures bets on 4 June, when the Bharatiya Janata Party (BJP) fell short of a majority by 32 seats at 240, against 330 expected by market constituents, in the 2024 Lok Sabha elections. However, growing expectations of political stability since then, with the government being headed by Prime Minister Narendra Modi and key portfolios remaining with BJP, have resulted in FPIs squaring off their short positions which act as a hedge to their Indian equity assets worth $797 billion, as per National Securities Depository Ltd.
The short-covering resulted in a large part of the 7% rally from the Nifty's low 21,884 on 4 June to the close of 23,465.60 on Friday. The Bank Nifty jumped 8.15% from a low of 46,077.85 on 4 June to 50,002 on Friday. The short positions were closed out by FPIs by buying them back at higher levels from retail and high net worth investors, who held a record long index futures positions of 333,364 contracts on 4 June.
Retail/HNI currently hold 25,083 net long positions. They have been transferring (selling) their longs at a profit to FIIs. In the cash market,
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