Stock Market

Foreign investors hold on to bearish bets

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Indian equity markets have rallied in the last two sessions, partly reversing recent losses, on hopes that the government would ease the higher tax surcharge on various overseas investors.

But, foreign investors continue to mostly hold on to bearish bets in derivatives, suggesting the recent rebound was aided by covering of short positions by individual investors. The long-short ratio of foreign portfolio investors is currently around 32-33, said derivative analysts.

This ratio is a measure of bullish positions compared to bearish ones.

When the ratio is high, it means sentiment is bullish and vice versa. “They have not covered their positions.

We have not seen major change in FII positions,” said Chandan Taparia, derivative analyst at Motilal Oswal. “They are still having some negative bias,” said Taparia. The benchmark Sensex had slumped 9 per cent between July 1 and Wednesday led by foreign portfolio outflows after the union budget.

The budget was expected to be high on stimulus to revive the slowing Indian economy but it turned out to be a dampener with the government increasing tax surcharge on the rich, including foreigners. The government also directed market regulator Sebi to consider the proposal of increasing minimum public shareholding limit to 35 per cent from 25 per cent currently, a proposal that spooked investors, who were worried about the impact of supply of shares on prices. But, recent talks of the government looking to relax the tax surcharge on FPIs improved sentiment with the Sensex and Nifty gaining almost 2.4 per cent on Thursday and Friday. Foreign portfolio investors provisionally net bought Indian stocks worth Rs 200 crore on Friday after relentlessly selling for 28 sessions, during which their outflow amounted to over Rs 26,000 crore. Further, stability will depend on the actual announcement of rollback of higher surcharge, said analysts.

Finance minister Nirmala Sitharaman met FPIs on Friday to discuss these issues. Analysts said the long-short ratio has moved up from the lows of 25, which was seen last week to over 30 but has remained around that level since then. “If the ratio is remaining there it means a large short covering can take place if there is a positive outcome.

So far the short covering that has happened is from HNI and retail investors, said Amit Gupta, head of derivatives at ICICIdirect. “FPIs will wait for an announcement before covering short positions,” said Gupta.




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Category: Stock Market


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