TREND: FPIs bearish on equities on inflation, growth worries
By Apoorva Choubey
MUMBAI – Foreign portfolio investors are stepping into the October derivatives series with trepidation as high interest rates, slowing global growth, and the rise in crude oil prices have dampened the outlook for Indian equities.
The September series, which expired Thursday, turned out to be a turbulent one for Indian stocks as global risk aversion came back to the fore after the US Federal Reserve indicated that interest rates in the world's largest economy were likely to remain higher for longer. The worsening macroeconomic landscape has made equity investors nervous that corporate earnings may not grow at the pace expected earlier.
The benchmark Nifty 50 surged over 900 points in the first half of the month and scaled lifetime highs of over 20200 points, only to nosedive more than 700 points in the second half. The index, though, managed to close over 1% higher for the September derivatives series, marking the fifth monthly gain in the last six series.
The global risk aversion is expected to spill over to October, as suggested by the fact that foreign investors have increased short positions in index futures as well as single stock futures, derivatives analysts said.
Foreign portfolio investors' net short positions outnumber their long bets by 57,300 contracts, Nuvama Wealth said in a report. Such investors, who form the largest category of clients in the Indian derivatives market, had been bullish till last month, with their net long positions outpacing short ones by 1,700 contracts at the start of the September series.
The selling by foreign investors has been a cause of concern for the Indian market in the short term, said Ashwin Ramani, derivatives analyst at SAMCO Securities.
Foreign investors pulled out around $1.9 bln from Indian equities in September, breaking a streak of six consecutive months of inflows till August.
Rollovers to the Nifty 50's October futures stood at 76%, lower than the three-month average of around 79%, analysts noted. This weak rollover figure, coupled with low open interest in the contract, is seen as evidence of the prevailing caution among market participants.
Options data suggests a broader trading range between 19200 points and 20000 levels for the Nifty 50 for this series, with an immediate trading range of 19400-19800 points, brokerage Motilal Oswal said in a note. The index closed 0.6% higher for the day at 19638.30 points.
With companies set to detail Jul-Sep earnings soon, investors are expected to remain cautious instead of adding aggressive bets, especially in large-cap stocks, said analysts.
All eyes will now turn to commentary from companies' managements about the impact of the recent rise in crude oil prices, appreciation of the dollar and the likelihood of global interest rates remaining higher for longer.
Despite the global risk-aversion and sell-off in blue-chips, Indian mid- and small-cap stocks continued to shine in September. The Nifty Midcap 150 and Nifty Smallcap 250 rose 2.5% and 3%, respectively, outperforming headline indices.
The resilience of the domestic economy and sustained inflows into small- and mid-cap companies from domestic institutions and high networth individual investors have made their prospects brighter, analysts said.
Retail traders and high networth individual investors continued to add long bets in stock futures of mid- and small-cap companies. Their net long positions in stock futures surged by 97,000 contracts from last month, said Nuvama Wealth.
However, this juncture seems to portend volatility, as long positions of these two client categories in stock futures hover close to historic highs and mid- and small-cap stocks have risen quite a lot, the brokerage warned. End