Retail investor acts as buffer to FII selling post budget

Retail investors, through the mutual fund route, are yet again absorbing the selling by foreign institutional investors (FIIs) post the budget, which is being reflected by a decline in fear gauge India VIX to a three-month low on Wednesday after wild intraday swings.

FIIs have sold shares worth almost ₹6,700 crore in the past two days in response to an increase in capital gains tax on shares in the budget. They have also cut their bullish index futures positions, which has led to wild swings intraday, but counter positions by retail and high networth individual (HNI) clients in cash and derivatives segments are cushioning their selling.

“FII sentiment seems to have soured a bit post the increase in capital gains tax, but retail is proving to be the buffer,” said U.R. Bhat, co-founder, Alphaniti Fintech. “The fall in the VIX over the past two days also signals the uncertainty is more or less out of the way, for now.”

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FIIs sold shares worth ₹1,548.64 crore on Tuesday and a provisional ₹5,130.9 crore, totalling ₹6,679.54 crore in the two sessions through Wednesday, show NSDL and BSE data, respectively.

Countering them, domestic institutional investors (DIIs) purchased a net ₹4,556.1 crore in cash. In futures, while FIIs reduced their net bullish positions in futures contracts to 54,771 contracts to 283,153 long contracts on Tuesday, retail/HNI closed out 72,785 short index futures taking their net short outstanding contracts to minus 120,149 contracts, shows NSE data. Derivatives data for Wednesday was not available at press time.

“Closing out a short involves buying it back at a lower price and therefore absorbing the FIIs’ long unwinding," said Chandan Taparia, senior vice president (head- derivatives & technical research) at Motilal Oswal Financial Services.

This buying by retail clients through MFs in cash and derivatives segments has cushioned the market fall on both the days. In total, the Nifty has fallen just two-fifths of a position on a closing basis, to 24,413.5 on Wednesday from 24,509.25 on Monday.

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On an intraday basis, the swings have been wild. For instance, gyration between Nifty’s high and low on budget day was a whopping 508.35 points and on Wednesday was 197 points. However, the buying by retail resulted in just a 96-point fall over the two sessions through Wednesday.

The India VIX has fallen 24% to 11.76, the lowest since 26 April (10.92) over the two days after swinging wildly between a high of 16.06 and a low of 11.61 over the two days.

“Though there has been high intraday volatility over the past two days, the lower closing suggests that the market trend is intact,” explained Taparia.

FIIs are likely to have further cut their long index futures bets on Wednesday, said Rajesh Palviya, head of derivatives & technical research at Axis Securities.

When FIIs sold ₹34,257 crore in April-May this year, DIIs absorbed that by picking up shares worth ₹99,919 crore (includes mutual funds, insurance, banks, etc). This enabled the Nifty to recover from a low of 21,778 on 19 April and close at 22,530 by May end.

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