FPIs Re­main Bullish on In­dian Eq­ui­ties

The Economic Times - - Companies -

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

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