Certain analysts believe that FIIs' long holdings in index futures may serve as a buffer against their pessimistic assessment of the Indian market.
In the two weeks leading up to the elections in 2014 and 2019, the Nifty 50 had increases, but on the day of the election results, those gains were greatly reversed. According to Shrivastava, three days after the ruling, the VIX fell by half as the premium for event-based volatility vanished.
In anticipation of the general election results, which are expected to be announced on June 4, foreign institutional investors (FIIs) and individual traders are net long on index futures. In comparison, individual traders were net long on index futures while FIIs were net short in the weeks leading up to the election outcomes in both 2014 and 2019.
The creator of IndiaCharts, Rohit Srivastava, told Moneycontrol that "FIIs were net shorts at the start of the month and have completed their short positions only over the last few days."
It is rare for FIIs and private traders to be on the same side of the trade before of the ruling, Srivastava said, adding that "in the last week the bets have moved in opposition to a negative surprise to a victory (for the NDA)".
According to SBI Securities' head of mathematical and derivative research Sudeep Shah, the long-short ratio of FIIs' index futures is currently 52%. Since May 1, FIIs have net sold Rs 40,777 crore in the cash market.
According to some analysts, FIIs' long holdings in index futures may be a protective measure against their pessimistic assessments of the Indian market. Even though they sold shares, if the market rose after the election result, they would still profit from their long bets in index futures.
"FIIs have been net buyers in stock futures, suggesting that stock-specific positioning is given more weight than index-based positioning. We believe FIIs are entering the event with a neutral posture based on their overall perspective, according to Shah.
Technical expert Dinesh Nagpal said that FIIs have begun to examine Bank Nifty, which was an underperformer till the previous year. "The positive outlook on financials could have prompted FIIs to cover current short positions and go long," Nagpal said.
In the two weeks leading up to the elections in 2014 and 2019, the Nifty 50 had increases, but on the day of the election results, those gains were greatly reversed. According to Shrivastava, three days after the ruling, the VIX fell by half as the premium for event-based volatility vanished.
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