Looking at the current investment pattern of the foreign institutional investors (FIIs) in the cash as well as derivatives segments, FIIs have remained net sellers in the cash and net buyers in the futures & options (F&O) segment in the month of October. Can you throw some light on the strategy followed by FIIs while investing in the Indian market
We should not be too obsessed with the shorter term strategies of the FIIs. FIIs could be playing on the arbitrage opportunities available between the two segments. There have been occasions in October, when the futures were quoting at a discount to the prices in the cash segment.
They could also be unwinding their hedged positions i.e. positions where they were initially long in the cash segment and short in futures.
As regards their strategies, different FIIs would adopt different strategies based on their objectives, time horizons etc. However, broadly they are looking at the growth opportunities available in various sectors and companies. Till recently, their investments in India formed a part of their allocations to Asian markets/ emerging markets. Now they are beginning to look at India distinctly.
The rising US interest rates and the falling Indian rupee can hit the FII inflows in the Indian market, which are the prime driving force and main source of liquidity. Comment
Rising US interest rates and falling value of Indian rupee (within reasonable limits) can affect the liquidity in the short term, particularly that of hot money. But looking at the long term India growth story, it is felt that the flows from the long-term investors should not be significantly affected.
What could be the share of hot money (hedge funds) in the total FII investment in the Indian capital market in the current year Do you think a sudden flight of this money from the domestic market can impact the momentum of the Indian stock prices
The share of hedge funds could be about 20-25% of the total FII investment in Indian capital market. Yes, a sudden flight of this money from the domestic market can impact the momentum of the Indian stock prices, at least in the short term. At the same time, it would offer a good buying opportunity to longer term investors.
Do you think futures is a more risky instrument compared to options for smaller investors Why is options trading not picking up in the Indian market Why are (Index & Stock) futures more popular in India
Yes, futures is more risky as compared to (buying) options for the small investors. In case of buying options, the maximum loss is clearly defined when the investor buys the contract, which is not the case with futures. The reason of their popularity lies in the ease of understanding, and similarity to the cash market as well as to the earlier badla system.
A committee appointed by Sebi has recently recommended to hike the exposure limit in the F&O segment. As an experienced market player do you think there is a need to further hike the exposure limit
Yes, it would make markets much deeper in terms of liquidity and reduce the shorter term volatility.
Recently some of the broking firms have been named in the Sebi investigation as those who have encouraged investors to trade in penny stocks. As a brokerage house, do you think it is the moral and social responsibility of the broking firms to educate small and retail investors to take informed investment decisions
Yes, we must play our part very proactively. I also believe that it is extremely important to gain the trust of our investors. As this industry has seen a lot of scams, it's important to show credibility to all our investors.