Retail bulls run into wary FPIs on Street

Bullish domestic investors and their circumspect foreign counterparts’ contrasting readings of the Lok Sabha polls’ outcome are being reflected in their positions on Nifty derivatives contracts.

Retail and HNI (high net-worth) investors—termed ‘client’ by NSE—are confident of a thumping win by the ruling NDA (national democratic alliance) coalition. They have been bullish on nifty futures contracts on a net basis by the highest quantity since 2 November.

On the other hand, FPIs (foreign portfolio investors), wary of an upset, have adopted an overly cautious stance, hedging their $794-billion portfolio of Indian shares to hold the highest number of bearish index futures contracts on a net basis since the same date.

As of 15 May, FPIs were cumulatively net short 245,332 index futures contracts and client were net long 283,565 contracts. These are the highest figures since 2 November, when FPIs were net short 351,396 contracts, and clients were net long 292,822 contracts, according to equity analysis firm IndiaCharts.

IndiaCharts has adjusted the figures after NSE halved the Nifty 50 contract size to 25 from 26 April while keeping Bank Nifty lot size unchanged at 15 shares to a contract.

What’s tilting the scales

Queried about the bullishness by retail/HNI, Nilesh Shah, MD & CEO of Kotak Mahindra Asset Management Company, said, “The market is optimistically pricing in all events, from elections to Fed pivot and from earnings growth to a normal monsoon and stable energy prices. Any event going against expectations will have an adverse impact on the markets.”

Market mavens also believe the improving voter turnout after four phases of polling – Election Commission of India (ECI) pegged turnout at 66.95% after four phases – was adding wind to the sails of market bulls. This enabled the Nifty to stage a smart recovery of 349 points from its intraday low to a closing of 22,403.85 on Thursday.

Rajesh Palviya, SVP (technical & derivatives research) at Axis Securities, said that the retail/ HNI sentiment will be “lifted” with the turnout drop decreasing sharply across the phases.

“There is an expectation of a repeat of 2019 that will open the door to stronger reforms, which is why retail and HNI are bullish,” Palviya said. He feels markets could rally to a fresh high of around 23,000 (past high on May 3 at 22,794.7) before the 4 June outcome. Profit-booking could set in after a BJP victory with markets focusing on the Union Budget post that.

The bearish FPI’s impact on markets

Past evidence shows that whenever FPI bearish positions reached high levels, markets tended to rise.

For instance, after 2 November, when FPIs were net short 351,396 contracts, Nifty rose from a low of 19,064 to a high of 20,159 on 30 November. Similarly, on 23 March last year when FPI bearish bets hit a net 370,388 contracts, the Nifty rallied from a low of 17,045 to a high of 17,842 on 13 April.

However, not all analysts are so sure of a pre-election-outcome rally.

“My base case is that market could break 22,000 and head for 21,700 by next week on likely long liquidation by bulls. Markets could trend volatile between 21,700 and 22,350 and take direction from there post the poll outcome,” said Jayesh Bhanushali, lead – research, IIFL Securities.

Meanwhile, Kotak’s Shah advises investors to maintain the SIP (systematic investment plan) approach, while keeping some powder dry as valuations were reasonable, especially for large caps. He also said that investors should prefer companies with high floating stock than those with low public float.


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