FPIs Remain Bullish on Indian Equities
Foreign portfolio investors (FPIs) continue to remain positive on Indian equities though this might not be reflected in the performance of the Nifty during the recent expiry due to change in their holding strategy. In the four trading sessions up to the expiry of futures contracts on March 31, FPIs invested 8,468 crore in the Nifty index through the spot or cash market. What may sound intriguing to a casual observer is that despite such a significant fund flow in such a short duration, the benchmark index budged just 22 points, or 0.3%, to 7,738 in four days to the expiry.
The fact that FPIs invested heavily in the spot market shows that they tend to remain bullish on Indian equities. However, the index did not reflect it because they preferred not to roll over the futures contracts on expiry since the cost involved in rollover increased compared with that of cash market investment.
The cost of funding for the FPIs fell by 150-200 basis points in March due to the declining implied volatility in the rupee and reduction in risk. The stability in the rupee played a critical role in bringing down the cost of funding. The implied volatility yield of the rupee was 4.6% on March 31 compared with the average of 10% in the past three months. Hence, FPIs raised wagers through cash market. Since it is done by an FPI already invested in India, the stance does not result in fresh investments. It is merely a shift of position to cash market from futures markets. This explains the limited movement in the Nifty even though the cash market reported higher inflow.
ET Intelligence Group