By Thursday’s market close, they had raised cumulative net bearish bets on Nifty and Bank Nifty futures by a whopping 71,095 contracts overnight to 107,486 contracts, indicating heightened caution amid rising tensions in the West Asia and the recent amendment to the India-Mauritius tax treaty.
FPIs were net short by 36,391 contracts on Tuesday, and stock markets were shut on Wednesday for a public holiday. They take net short positions on index futures as hedges against their cash portfolios, which comprise mostly large-cap stocks, or as punts. FIIs cumulatively held Indian shares worth $769.5 billion as of 31 March, data from NSDL showed.
The change in stance comes soon after they held a cumulative bullish position of 51,282 contracts on 10 April.
“It isn’t common to see this kind of an overnight increase in bearish positions,” said Rohit Srivastava, founder, IndiaCharts. “The last time they were short by such an extent (108,883 contracts) was on 21 December last year, after which markets began to rise. However, this time around, the looming uncertainty in West Asia is causing markets to correct. These could be hedges against their portfolios, but such a large rise overnight hints at growing concerns.”
Andrew Holland, CEO, Avendus Capital Alternate Strategies, said, “It’s hard to ascertain whether these are punts or hedges, but they seem to have arisen with rising Israel-Iran tensions in the backdrop.”
Kruti Shah, quant analyst, Equirus, said that though the news of the Mauritius treaty amendment has been “in the markets for some time”, that could be spooking FPIs.
The amendment would effectively tighten the screws on those foreigners using the east African island nation to route funds into Indian shares simply to avail of the tax benefits.
FPIs have intensified selling Indian equities since Iran fired over 300 drones and missiles at Israel overnight Sunday, retaliating against Israel killing two senior Iranian army commanders in Damascus on 1 April.
In the past four sessions through Thursday, they have net sold Indian shares worth ₹18,698.31 crore, including a provisional ₹4,260.33 crore on Thursday, according to NSDL and BSE data. This has turned them into net sellers of ₹1,091 crore so far this fiscal year.
The Nifty earnings yield, the inverse of the price to earnings multiple, was 0.24% below the US 10 year-bond yield, which quoted at 4.62% intraday Thursday. Normally, the earnings yield trades at a premium to the 10-year US paper.
Renewed conflict in West Asia could result in crude oil hitting $100 a barrel, which can widen India’s trade deficit and hurt the rupee.