War fears push FPIs to double India hedges to near record high

₹19,974.9 crore in two weeks, according to NSE data.The short position is close to the record high of 231,796 contracts seen on 24 February last year, when markets were roiled by proposed Trump tariffs, per data from analytical firm IndiaCharts."These are hedges taken by large funds that tend to be buyers of EMs (emerging markets) like India," said U.R. Bhat, founder of investment platform Alphaniti Fintech.

"The significant rise in hedging reflects concerns over the fallout from a protracted war with neither side (US/Israel versus Iran) taking any conciliatory steps thus far." Bhat said these long-term investors typically hedge their portfolios during volatility rather than selling shares in the secondary market at higher transaction costs."Rather than selling and then buying again in cash, it's cheaper for them to short index futures and square them off once the crisis shows signs of blowing over," added Bhat.These hedges offset declines in portfolio value. If an investor holds Nifty 50 stocks and the index corrects by 10%, futures prices also decline by a similar extent, helping compensate for unrealised losses in the cash portfolio.On the other hand, if the index rises in the event of abating West Asia tensions, the fall in the short futures positions are offset by gains in the index-based cash stocks.

"Hedging is a risk mitigation strategy adopted by large institutional investors during a risk-off event like the one we are in, where no side involved in the war is taking steps for a rapprochement, at least for now," said S.K. Joshi, consultant at Khambatta Securities.Joshi explained that the rise in hedging activity by FPIs signifies the risk of higher crude prices for an economy like India that imports nearly 90% of