FPIs turn wary on Indian stocks, become net sellers of futures

livemint.com:

MUMBAI : Amid expectations of heightened market turbulence in the wake of India’s surging retail price inflation and slowing merchandise exports, which impacts the rupee, FPIs have turned net sellers of Indian stock futures of a significant quantity in just four days, a rare occurrence, according to market experts, who see this as a move to hedge their profits against a falling market. From being cumulatively net long 19,130 stock futures contracts on 9 August, they turned net sellers of 83,366 contracts on 14 August, during which period the Nifty shed a percent or 198 points through Monday’s closing of 19435.55.

Selling stock futures acts as a hedge against a fall in the underlying stock price as the loss from its value is offset by the gain made by going short on its derivative contract. Coupled with shorting stock futures, FPI net inflows into the cash segment of stock markets like NSE and BSE have petered out to ₹737 crore so far this month, according to NSDL, from a four month average inflow of ₹37,309 crore.

“The next two months could see Nifty testing the 18800 mark amid a strengthening dollar, weaker China economy and food supply shocks back home," said Piyush Garg, CIO, ICICI Securities. Garg expects the Nifty to resume its rally post the correction toward the 20800 mark, but expects some “headwinds" on the way amid assembly elections which kick off in November.

A stronger dollar impacts the profits of FPIs when they repatriate funds back home as they have to first convert rupee to dollar, the base currency. The rupee briefly breached the psychological 83/$ mark on Monday before paring losses to close lower at 82.95.