Foreign institutional investors have been mounting bullish derivative positions on India in the past month, while simultaneously purchasing stocks.
They’re betting on more upsides in the run-up to the national elections in April and May.
Analysts said FIIs had created long positions worth Rs 9,700 crore (Rs 97 billion) in index futures till recently.
This is almost six times the positions, worth Rs 1,500 crore (Rs 15 billion), a month before.
“FIIs have been building aggressive long positions in index futures and simultaneously trimming short positions, ahead of the general election.
This has resulted in a net long addition of Rs 8,215 crore (Rs 82.15 billion) in a month,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.
In March so far, FIIs have purchased almost Rs 8,000 crore (Rs 80 billion); in January and February, they invested a combined Rs 2,452 crore (Rs 24.52 billion). “Sentiment is definitely upbeat.
"FIIs have been buying in the hope that there will be a stable government post elections and under-valued stocks will start moving up,” said Mayuresh Joshi, vice-president and head of institutional sales, Angel Broking.
He said buying was seen in the capital goods, infrastructure and banking sectors.
Further, the dollar-rupee arbitrage for FIIs looking at India is still lucrative, said analysts.
“While the Nifty has hit all-time highs in rupee terms, in dollar terms it has still not scaled new highs.
"For an FII, dollar returns are as important as the rupee returns,” added Joshi.
On Tuesday, the BSE Sensex touched an all-time high of 22,040, while the NSE Nifty touched an all-time high of 6,574.
So far in March, the Nifty has returned about four per cent; the Sensex gained 3.3 per cent.
Since January, the Nifty has gained 3.5 per cent and the Sensex is up 3.1 per cent.
FIIs have been net buyers of equities for about three-fourths of the 52 trading sessions so far this year.
They have so far this year net-bought equities worth Rs 19,504 crore (Rs 195.04 billion).
Indian markets have emerged as one of the best performing in the world this month.
The BSE’s Sensex is up eight per cent over the past month and has beaten even the US in terms of dollar returns, according to a Macquarie Capital Securities India report dated March 14.
FII interest has extended to even the mid-cap names in the relevant segments.
Long positions have been created in mid-cap names of the banking, capital goods, automobile, cement and even the fast moving consumer goods sectors. Stock futures of some of the mid-cap names like Dabur and Havells have seen good FII interest, say observers.
“If there is money coming in and the Nifty is not able to move up too much, then some of the buying would naturally shift to the mid-cap segment as well.
This suggests a broad-based move in the market,” said Amit Gupta, head (derivatives), ICICI Direct.
Image: US dollars; Photograph: Reuters