Short circuit: Foreign investors likely to press the sell button this week
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Subscribe to enjoy similar stories. Foreign investors appear to have readied themselves for a negative reaction over this week, after remaining largely absent during the special budget session on Saturday. The Union budget's tilt towards consumption over capex, anticipation of an expanding global trade war, and uncertainty over the next monetary policy outcome on 7 February could have influenced their decisions, according to analysts.
In rare move, ahead of the budget, FPIs (foreign portfolio investors) heightened their bearishness by net selling index (Nifty and Bank Nifty) call options, in addition to cash market sales and shorting index futures. A day earlier, On Friday, they net shorted 94,350 call option contracts on Nifty and Bank Nifty. And on budget day, they increased their aggregate short index call positions to 99,661 contracts, per NSE data.
A seller of call options expects to retain premiums paid by call buyers on the premise of markets falling or moving in a range. Also read | FPI returns since 4 June all but wiped out “Selling index calls in addition to being net short index futures and on cash implies a heightened bearish stance ahead of the budget and the monetary policy meeting on Friday," said Rajesh Palviya, head of derivatives & technical research at Axis Securities. “It’s possible that anticipation of a trade war opening could have partly contributed to their shorting decision." He was referring to the executive orders signed Saturday by US President Donald Trump imposing 25% tariffs each on goods imported from Mexico and Canada, and 10% on China.
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