MUMBAI: A decline in US bond yields and a fall in the dollar have prompted foreign portfolio investors (FPIs) to reduce their near-record bearish bets on Nifty and Bank Nifty futures contracts in the last two sessions till November 6, raising hopes. It has increased that Nifty may get another rise. Up 1.5%, touching 19,700 ahead of Diwali.
FPI short-covering resulted in Nifty successfully staying above the key retracement level of 19,367 for the second consecutive day on Tuesday; The market closed at 19,406.70, up 78 points from the day’s low, which is being seen as a positive sign in the market.
FPIs reduced their cumulative index net shorts to 147,370 contracts on November 6 from 175,698 contracts on November 2, second only to the record bearish high of 196,378 contracts on March 22 when the market closed at 17,152. FPIs exert significant influence on market movements by virtue of their positions in the cash and futures markets.
View Full Image
From March 22, FPIs started covering their short positions, turning net long by 62,030 contracts on September 15, a move from the 52-week low of 16,828 on March 20 to a market record of 20,222.45 that day. There was a reason. Of course, their cash purchases 1.69 trillion during March-August also fueled the rally from lower levels.
They then began discounting longs and increasing bearish bets on cash and index futures, causing the market to fall from a record high of 20,222.45 to a low of 18,838 on October 26. Subsequently, they reduced their negative futures bets on November 3 and November 6, which helped the rebound. Data for November 7 was not available at press time, but market experts expect short-covering to continue, leading to a corrective rally.
Interestingly, they also became buyers in cash 359.87 crore on November 6, which coincides with their reduction in futures short positions. They remain sellers of value shares 42,454 crore from September 1 to November 5.
“There are several driving factors for FII flows into EM, two of them being US bond yields and the dollar, which were negative for emerging markets so far, but after the clearly dovish Fed policy on November 1,” said Jyotivardhan Jaipuria, founder, Have decreased.” PMS firm Valentis Advisors. “We will probably see more of them covering their shorts in the derivatives market, which along with domestic buying could push the market higher by 1.5-2% in the near term.”
Rajesh Palviya, head of derivatives at Axis Securities, agrees. “Today’s (November 7) close is very positive as the market closed above the key 38.2% retracement level and can now test the 61.8% level which could take it to 19,650-19,700, further supported by FPI short covering Is.”
US bond yields, which hit a 16-year high of 5% on October 23, have currently declined to 4.59%, while the dollar index, which measures the greenback’s strength against six major currencies, has fallen from 106.88 on November 1. . The US Federal Reserve cut interest rates to 105.59 intraday on November 7 for the second time since September.
While FPIs have made net sales of index futures, retail and high net worth individuals (HNIs), proprietary traders and domestic institutional investors (DIIs) are net buyers.
Foreign investors borrow cheaply in the US to invest in higher yielding and riskier EM assets.
When bond yields rise there, they pull money out of emerging markets to invest in US bonds and dollars.
Milestone alert!Livemint tops charts as fastest growing news website in the world Click here to find out more.
Catch all business news, market news, breaking news events and latest news updates on Live Mint. Download Mint News app to get daily market updates.
more less
Updated: 08 November 2023, 12:00 AM IST
