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FPIs close record bearish bets on benchmark indices


MUMBAI : Days before the US Fed meeting on Wednesday, foreign portfolio investors (FPIs) became marginally bullish on Nifty and Bank Nifty derivatives contracts, reversing a record position set just over three weeks ago. Analysts extrapolate this so that the market has priced in the worst-case scenario of the Fed not taking a break from rate hikes.

On the other hand, if the Fed hints that it is done with rate hikes, the uptick in sentiment in emerging markets like India could extend the rally that has been underway since March 20 towards Nifty’s all-time high of 18887.6 on December 1st.

From 92% net short on March 22, FPIs have become net 51% long on May 2. Data on the May 3 positions was not available until press. Coverage of bearish bets over the period coincided with FPIs buying stocks 11,631 crore in April and 9,461 crore in May so far, according to NSDL.

On May 3, FPIs bought a provisional 1,338 crore shares as DII’s unloaded shares worth 584 crores. NSDL has not updated the data for May 3.

“After taking a record 92% short position on index futures in March, FPIs hedged this and became net 51% long on May 2,” said Santosh Pandey, president and head of Nuvama, Professional Clients Group. has priced in money in the worst-case scenario that the Fed does not come along. On the other hand, if a decisive pause does indeed come, the surge in sentiment could push the market closer to the December high of 18y,887.6.”

Since March 22, when FPIs had record high short positions through May 2, the Nifty gained nearly 1,000 points or 6% after buying cash and closing their short positions.

“The market seems to have priced in the worst, looking at the FPI action,” said Rohit Srivastava, founder of IndiaCharts, a data analytics company. “A decisive pause by the Fed would be a huge boost to sentiment.”

Interestingly, yields on 10-year benchmark government bonds fell 9 basis points to 7%, the lowest level in a year. oil price drops to $75/barrel, no surprise expected either on global markets or in India, and inflation tends to fall.

The Fed has raised its benchmark Fed Funds Rate from near zero since March 2022 to a range of 4.75-5% currently. Markets have discounted a 25 basis point hike, after which the Fed is expected to announce a decisive turn.

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Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.