Adani crisis makes FPIs double down on bearish bets

Experts said till February 10, FPIs sold 105,540 index futures as part of hedge and speculative bets to protect their portfolios or to profit from the anticipated market correction. This is in addition to the $2.67 billion sold in cash between January 24 and February 9.

This change in investment strategy may also reflect portfolio investors’ concerns about the implications of the Adani crisis for the Indian economy.

The number of contracts sold on a net basis was the highest since October 3, when FPIs were net short by 127,429 contracts. FPIs hedge their cash portfolio by net selling index futures to protect their profits from market correction. At times, some FPIs take speculative bets to profit from sudden corrections.

Rajesh Baheti, managing director of CrossSeas Capital, one of the country’s largest proprietary traders, said net selling of Nifty and Bank Nifty futures apart from cash stocks means that FPIs are “quite cautious”.

“The Adani crisis caused the market to break below the crucial 18,000 support level, which it held just before the issue started rising,” Baheti said. Union Budget as far as they are concerned.”

Since the release of the report on January 24, the Nifty has fallen from 18,118.30 on February 10 to 17,856.10.

A day after the Hindenburg Report came out, alleging corporate wrongdoing against the group, FPIs became net sellers of 23,063 contracts, cumulatively net long was 23,507 contracts. At the end of February 1, on Budget day, the figure rose to 85,804 contracts and shortly after, crossed the 100,000-mark.

The Adani Group has dismissed the allegations as baseless and has hired Wachtel, one of the costliest US law firms, to take on the short-seller.

Last week, global index provider MSCI cut the weighting of some Adani stocks, including index constituent Adani Enterprises, and the Supreme Court called on the Securities and Exchange Board of India to suggest strengthening the investor protection framework.

Rohit Srivastava, founder, IndiaCharts, said, “The strange thing is that whenever net index futures sell futures are above 100,000, the market bottoms out.” Nifty is above the breakout level of 18,030.

He cited the period from October 3 to December 1, 2022, when FPI positions moved from net 127,429 contracts to net long 96,942 contracts, with the Nifty climbing 12% to a record high of 18,887.6.

However, some market players said that despite heavy cash and selling of index futures, the market rallied due to the crisis.

Nikhil Ranka, Senior Vice President and Portfolio Manager, FPI said, “So far this year, FPIs have sold equities worth $4.3 billion and shorted index futures above 100,000. EDGE Fund, Nuwama Asset Management.

Ranka said given the resilience, if the market stabilizes between 17,500 and 18,000 and heavyweights such as Reliance Industries Ltd pick up “traction”, the Nifty could test the upper end of the band, which is being called “short covering” by FPIs. prop traders who had sold call options on Nifty at 18,000. This could lead to a sharp rally to 18,400.