Foreign institutional investors (FIIs) and individual traders are net long on index futures ahead of the general election results, scheduled to be declared on June 4. This contrasts with the weeks before the election results in 2014 and 2019 when FIIs were net short on index futures, and individual traders were net long.
“FIIs were net short at the start of the month and have covered their short positions only over the last few days,” Rohit Srivastava, founder of IndiaCharts, told Moneycontrol.
"In the last week the bets have moved away from a negative surprise to a victory (for the NDA),” Srivastava said, adding that it was unusual for FIIs and individual traders to be on the same side of the trade ahead of the verdict.
The long-short ratio of FIIs’ index futures is now at 52 percent, said Sudeep Shah, head of technical and derivative research at SBI Securities. In the cash market, FIIs have net sold Rs 40,777 crore since May 1.
Some experts feel FIIs' long positions in index futures could be a hedge against their negative view on the Indian market. While they have sold shares, they still would gain from their long positions in index futures if the market were to rally post the election verdict.
"In case of stock futures, FIIs have been net buyers, which implies that the focus is more on stock specific positioning as compared to the indices. Looking at the overall positioning, we feel FIIs are going into the event with a neutral stance," said Shah.
Also read: Nifty, Sensex fall as traders book profit ahead of election results, S&P upgrade fails to boost
FIIs have started looking at Bank Nifty, which was a underperformer until last year, said Dinesh Nagpal, technical analyst. "The positive outlook on financials could have prompted FIIs to cover their short positions and go long," Nagpal said.
During the 2014 and 2019 elections, Nifty 50 gained in the two weeks prior to the elections and on the election verdict day, intraday gains were given back significantly. Three days after the verdict, VIX has dropped by half as the premium for event based volatility went away, said Shrivastava.
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