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Mumbai: FIIs have turned cumulatively net short stock futures in June after a 40-month gap, with markets at record highs. On Friday, they were net short 338 contracts, after first turning net sellers from June 7-9.
Analysts cite three likely reasons for the shift — first, a repositioning of strategy near record high levels; second, hedging their cash portfolios by shorting stock futures, and third reducing their bullish bets on stock futures on expectation of a pullback or consolidation.
On June 8, they were net short 10,427 contracts and a day before 5,873 contracts short. Prior to that, FIIs were cumulatively short 16,942 contracts on February 5, 2018. Until recently, they remained net long, taking positions of 6 lakh -plus contracts in June of last year.
The 50 stock Nifty has risen from a multi-year low of 7,511.10 on March 24 last year through a record high of 15,901.6 on June 15, 2021. On Friday it closed at 15,860.35. Huge buying by FIIs in cash and futures was one of the reasons for this surge.
FIIs purchased Rs 2.74 lakh crore shares in FY 21, the highest in any fiscal since FY93. In the current fiscal through June (FY22) they have net purchased Rs 2,668 crore of shares.
FIIs until recently remained long in stock futures along with cash, signalling a “highly bullish” mood, said Rajesh Palviya, derivatives head, Axis Securities. Palviya feels they could be booking profits on some large counters with markets at fresh highs, which “accounts for the net shorting of stock futures.”
“It’s tough to pinpoint a single reason,” added Hitesh Jain, lead analyst, strategy department at Yes Securities. “It could be changing strategy near record highs, or simply booking profits on bullish bets.”
Chandan Taparia, derivatives head, Motilal Oswal Financial Services, said , if none of the above reasons held, it could be the commencement of cash and carry arbitrage, whereby traders buy stocks in cash and sell futures on them one or two months down the line to pocket a risk-free spread .
For e.g., if cash stock X trades at say Rs 100 and its futures trades at Rs 102.5, a trader can buy the cash stock and simultaneously sell the futures. At expiry, the spot and futures prices converge, helping the trader cash in on a robust yielded 2.5% a month.
Analysts cite three likely reasons for the shift — first, a repositioning of strategy near record high levels; second, hedging their cash portfolios by shorting stock futures, and third reducing their bullish bets on stock futures on expectation of a pullback or consolidation.
On June 8, they were net short 10,427 contracts and a day before 5,873 contracts short. Prior to that, FIIs were cumulatively short 16,942 contracts on February 5, 2018. Until recently, they remained net long, taking positions of 6 lakh -plus contracts in June of last year.
The 50 stock Nifty has risen from a multi-year low of 7,511.10 on March 24 last year through a record high of 15,901.6 on June 15, 2021. On Friday it closed at 15,860.35. Huge buying by FIIs in cash and futures was one of the reasons for this surge.
FIIs purchased Rs 2.74 lakh crore shares in FY 21, the highest in any fiscal since FY93. In the current fiscal through June (FY22) they have net purchased Rs 2,668 crore of shares.
FIIs until recently remained long in stock futures along with cash, signalling a “highly bullish” mood, said Rajesh Palviya, derivatives head, Axis Securities. Palviya feels they could be booking profits on some large counters with markets at fresh highs, which “accounts for the net shorting of stock futures.”
“It’s tough to pinpoint a single reason,” added Hitesh Jain, lead analyst, strategy department at Yes Securities. “It could be changing strategy near record highs, or simply booking profits on bullish bets.”
Chandan Taparia, derivatives head, Motilal Oswal Financial Services, said , if none of the above reasons held, it could be the commencement of cash and carry arbitrage, whereby traders buy stocks in cash and sell futures on them one or two months down the line to pocket a risk-free spread .
For e.g., if cash stock X trades at say Rs 100 and its futures trades at Rs 102.5, a trader can buy the cash stock and simultaneously sell the futures. At expiry, the spot and futures prices converge, helping the trader cash in on a robust yielded 2.5% a month.
( Originally published on Jun 27, 2021 )
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