MUMBAI: After investing a record Rs 2.74 lakh crore in Indian stocks in FY21, foreign institutional investors (FIIs) have sold Rs 30,709 crore worth of shares in the current fiscal year (FY22) so far, creating an impression of bearishness.
But a look at their derivatives positions, especially on indices like the Nifty and Bank Nifty, and single stock futures suggests otherwise. They were cumulatively net long index futures by 55,391 contracts and net long single stock futures by over 1.17 lakh contracts as on January 14.
“Their derivatives positions show them to be hedging their cash sales or simply taking bullish trading bets, which suggests their faith in Indian stock markets is intact,” said Rajesh Palviya, derivatives head at Axis Securities.
A futures contract either on an index or a stock facilitates the purchase or sale of an underlying index or stock at a predetermined price on a future date.
“FIIs can sell in cash at higher index levels, but hedge these sales by going long Nifty futures or stocks,” explained Hormuz Maloo, director, AFco Investments.
The counterparties to FIIs on the index futures are domestic institutional investors, like mutual funds, and proprietary traders. On stock futures their counterparties are DIIs.