Nifty, Sensex within kissing distance of new high

PALAK SHAH Mumbai | Updated on May 27, 2021

Despite FPIs’ record selling in 4 years, indices gaining on local strength

Foreign portfolio investors (FPIs) have been caught on the wrong foot in the stock markets with their record nearly $3 billion selling in May even as India’s benchmark equity indices Nifty and Sensex nearing their lifetime high. Amidst Covid-19 second wave gloom and the central ruling party BJP’s loss in the West Bengal state elections, FPIs turned out to be relentless sellers during the entire month. But this time the might of domestic players is taking the markets higher.

A day ahead of the May month expiry of equity derivatives, Nifty closed at 15,301 after gaining 93 points or 0.61 per cent. Earlier, in February the Nifty had hit an all-time high of 15,431.75. The BSE Sensex closed at 51,017 after it rose by 379 points or 0.75 per cent. The Sensex had recorded its peak at 52,516.76.

Undertone remains bullish

Experts are of the view that the bullish undertone of the markets remains intact but the move to remain sellers has surprised many on the street.

In May so far, FPIs have been sellers in the stock futures segment to the tune of ₹13,389 crore, their highest selling in the segment in four years since April 2017. In addition, FPIs have also sold stocks worth ₹8,680 crore in the cash segment.

Experts say that if selling in stock futures and cash is combined, FPIs were on a record selling spree for more than five years in a single month. It is only in the index futures segment that FPIs forcibly cover their short positions. They were net buyers to the tune of ₹2,505 crore in this segment in May.

‘Low behind us’

“Markets could witness unprecedented moves by FPI selling data. The history of FPI trading in F&O shows that they tend to have extreme long positions at market peaks and similarly extreme short positions at near market lows. The reason is that as a group FPIs are subject to the same herding instinct that moves markets. For this reason, I conclude that this extreme positioning in stock futures is actually a bullish signal for the market for the coming weeks and that an important low may already be behind us. 15,000 is unlikely to be broken now and given and we should look for new all time highs in the weeks ahead,” said Rohit Srivsatava, chief strategist, Indiacharts.

The market rally had started at the beginning of May when the street sentiments were at a nadir due to rising Covid-19 cases and BJP’s election defeat. But this time in contrast to the set scenario, buying by domestic and mainly retail players led to the sharp upside in the markets, experts say. Although there is no separate data of retail players that stock exchanges give, brokers say they have seen heightened activity from this segment.

“We believe the undertone is positive and any correction should be used as an opportunity to accumulate. We see value in IT, Auto and specific BFSI stocks,” said Sahaj Agrawal, Head of Research- Derivatives, Kotak Securities.

Published on May 26, 2021

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