Foreign portfolio investors (FPIs) have rolled over most of the short positions held in the November derivatives series to December in a sign that they expect slowing economic and earnings growth. Coupled with rising global uncertainties, these challenges could pressure India’s premium valuations.
FPIs have begun the December derivatives series with over 118,500 net short contracts in index futures and over 415,000 net short positions in the index options segment, the data shows. This is just slightly lower compared to net short positions of over 153,000 and 422,000 in index futures and options at the beginning of the November derivatives series.
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However, if one looks at the average positioning of FPIs at the beginning of three previous series’ – August, September and October – it can be seen that they held more long contracts than shorts.
Axis Securities said 79.3% of positions were rolled over from the November to December series, significantly higher than the 76.3% rollover in the previous series and the three-month average of 76.4%.
Sriram Velayudhan, senior vice-president of alternative research at IIFL Institutional Equities too noted that total open interest in Nifty futures has risen to `308 billion at the beginning of the December series as against `281 billion at the start of the November series. “Nifty has seen a short build-up in the December series,” he said.
A short build-up happens when prices drop along with a rise in open interest.
Experts believe that concerns over slowing domestic growth momentum could lead to further bearish sentiments. The latest GDP print of 5.4% for July-September, released after market hours on Friday, is expected to hit sentiments as it is markedly lower compared to expectations of 6.5%.
With the July-September earnings of India Inc not meeting expectations, market participants believe global investors may not be comfortable betting aggressively on India at these valuations as of now.
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While FPIs have been net sellers in the secondary market, they have continued buying the primary market in November. “The reason for this dichotomy is the high valuations in the secondary market and the reasonable valuations in the primary market.
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