FPIs give the market rally a miss

Continuing the bearish sentiments in June, foreign portfolio investors (FPIs) refrained from aggressive buying in the stock markets in July too. This despite the fact that the Sensex and the Nifty rallied around 9 per cent.

According to stock market data mining experts, the current market rally is fragile since FPIs and domestic institutional investors (DIIs) are keeping away.

Data show FPIs covered their short positions to cut their loss in index futures, as the Nifty index kept rising on the back of heavy buying from retail and high net-worth individuals. But no big fund flow came into the market from FPIs and DIIs.

There have been major block deals of companies including Infosys, HDFC Bank and Bandhan Bank in July and up to this week so far, where either management or promoters led shareholders sold their stake. Now, the exchange data show that FPI bought what the promoters sold.

Bandhan Bank: Major buy

In July up to August 3, FPIs bought stocks worth ₹10,309 crore in the cash segment, out of which ₹7,818 crore was in a single counter --Bandhan Bank --where the promoter sold their stake. Now, if one offsets FPI buying in cash with net selling of ₹7,428 crore in the futures market, the net impact is negative. Also, domestic institutions have sold stocks worth ₹22,363 crore in the cash market.

Experts say, the correct way to look at FPI buying in bulk from promoters is that money was moving out of markets, since promoters are not reinvesting it in markets in the near term, which is negative.

Only short covering, no longs

“Since March lows, FPIs have refrained from buying. Whatever little flows came were due to weakness in the dollar. Once the dollar gains strength against global currencies, FPIs will pull out from emerging markets. Still rising Covid cases are a major concern and large investors are not in a hurry to get into the markets. FPI shorts in the index segment are lowest in two years. It shows they will add nothing more to the current rally,” said Deepak Sawhney, independent data analytics expert.

Short covering leads to higher index price but lack of such positions mean slowdown in the rally, experts say. “In the past two months, FPIs have shown no interest in building long positions and participating in the market rally. Their index derivative position is near zero now and all shorts covered. But markets may not fall so long as retail and HNIs investors have used up all their fire power,” said Rohit Srivastava, strategist, IndiaCharts.

In the stock futures, the overall open interest is around ₹98,409 crore. In this, the FPIs currently hold positions worth ₹84,906 crore, which is nearly the same as June. Domestic position is worth ₹13,504 crore, which has risen from just around Rs ₹100 crore in March.

Overall market wide open interest was ₹1,13,390 crore on July 1. On August 3, the OI was ₹1,13,773 crore despite institutional selling, which means that largely domestic retail and HNI traders have taken over positions sold by institutions.