Foreign institutional investors have begun using the arbitrage opportunity that exists in the market. This has led to the Sensex finding strong support at the 19,500-point level and the Nifty refusing to fall below 5,500 point.
Securities & Exchange Board of India data show that FIIs were net buyers at Rs 3,518 crore in the cash segment to since November 30 to date. During the same period, they were net sellers of individual stock futures worth Rs 4,614.91 crore.
At the same time, the FIIS were net buyers of index futures worth Rs 1,182.7 crore. All this points towards their long-term bullish view on the market.
Market experts say that normally, the returns for the arbitrageurs are higher at the beginning of the series and they fall as the cost of carry declines towards the expiry of the series. Investors take arbitrage positions by playing in the difference between the futures and the cash market prices of stocks.
Siddarth Bhamre, derivative analyst, Angel Stock Broking, says, ?The pattern of investment made by the FIIs in the cash and derivatives markets show that they are purely into arbitrage trading. With the overall cost of carry in the derivative segment being at higher levels, FIIs are finding it very lucrative to take arbitrage positions?. But he cautions, ?Any unwinding of such positions would put some pressure on the market.?
Tejvinder Singh, derivatives analyst, Arihant Capital Markets, says, ?FIIs are going in for delivery-based buying in the cash segment and at the same time remained net buyers of index futures worth Rs 1,182.7 crore. This shows that they have taken a long view on the equity indices.?
In the coming week, the market is betting on a potential rate cut by the US Fed Reserve to pull the US economy out from a possible recession. If that happens, the Indian market will receive more inflows from FIIs, say experts.