Markets
FIIs versus retail: Battle lines drawn ahead of budget
Summary
- While retail investors and HNIs are approaching budget with caution to protect profits, FIIs are going full throttle.
- Retail/HNIs' net short is close to a 7-year high hit earlier this month, FIIs' net long position is also close to their highest net bullish position in seven years on 4 July.
With less than a week to go before the presentation of the Union budget, battle lines have been drawn between retail and high networth investors (HNIs) on one side, and foreign institutional investors (FIIs) on the other.
The retail/HNI category is approaching the event with caution to protect its cash market profits, while FIIs are going full throttle after the election results which gave the National Democratic Alliance (NDA) government a third term in office, showed data from the NSE, the country’s biggest stock exchange.
Retail investors and HNIs, or ‘client’ as NSE designates them, were cumulatively net short 226,621 index futures contracts (Nifty and Bank Nifty) as of 15 July. This net short is close to a seven-year high hit earlier this month (295,869 contracts on 4 July).
FIIs were net long 347,828 index futures contracts as of Monday, which also happens to be close to their highest net bullish position in seven years of 392,157 contracts on 4 July.
Read | F&O trading: Sebi to discuss ways to tighten the screws on retail speculation
In addition to their net short index futures positions, client is cumulatively net short index call options by 594,605 contracts and index put options by 375,215 contracts.
FIIs, along with proprietary traders, have net purchased index calls sold by client, while the former has purchased index puts sold by client and prop traders, data shows.
“The sale of index futures and of index calls and puts by FIIs indicates they want to hedge their profits against the uncertainty surrounding the Budget," said Rajesh Palviya, senior vice-president and head of derivatives & technical research at Axis Securities. “All the same, they seem to expect the Nifty to trade within a certain range, which is why they are selling index calls and puts."
Indeed, options data for 25 July expiry, two days after the budget, shows maximum resistance for Nifty at 26,000, up 5.6% from Tuesday's closing of 24613, and maximum support at 24,000, which is 2.5% below Tuesday's closing.
While retail investors have net purchased cash shares worth ₹35,246.1 crore till 12 July this fiscal year, FIIs have net purchased shares worth ₹16365 crore till 15 July.
And this | Retail investors and the draw of options trading, and why regulators are worried
FIIs, who had sold shares worth ₹34,257 crore in April-May, purchased shares worth ₹50,623 in the past month and a half, after the election results of 4 June heralded economic continuity.
The client category, which net purchased ₹24,274 crore worth of shares in April-May , tamped down on buying since June, net buying ₹10972 crore, with sales of ₹884 crore in the current month through 12 July.
“Retail/HNI are baying for a rangebound move through the budget," said Rohit Srivastava, founder, IndiaCharts. “They seem to have initiated a bearish stance on index futures and options, a sign of caution ahead of the impending event."
Axis Securities’ Palviya believes if there are no negative surprises in the budget, short-covering by the client, category could enable the Nifty to move toward 26000.
This also | Budget may hike tax on F&O trading. Here's what it could mean
