With election fever nearing tipping point, market is bracing for a high-voltage battle between bulls and bears next week. While on one hand the foreign portfolio investors (FPIs) are sitting on the highest ever net short positions in index futures, retail and high net-worth investors (HNIs) are the most bullish ever, considering their positioning in index futures.
The FPIs’ net position in index futures at the start of June monthly series is nearly (-) 297,800, indicating utmost caution ahead of the counting of votes on Tuesday. FPIs have been net sellers in India since April due to expensive valuations and uncertainty amid General Elections. At the same times, retail and HNIs have net positions of over 296,000 in index futures, which is the highest ever on record. This mixed set of data indicates volatile trend for the market next week, analysts said. The market’s volatility gauge India VIX rose 1.8% to fresh two-year high of 24.60 levels on Friday.
While a comfortable majority for the incumbent government could lead to some short-covering led rally, market participants believe the upside might be capped. “While there are prospects of short-covering if there is no negative surprise in election results, profit-taking is also a possibility because retail investors are positioned on the higher side,” said Sriram Velayudhan, senior vice president at Alternative Research, IIFL Securities.
Overall, the rollover of positions to the June series in the Nifty contract was around 72%, in line with the three-month average of 71.4% and lower than six-month average of 74.7%, according to the data from Nirmal Bang Institutional Equities.
“Some investors are on the sidelines given the major event next week. We will likely see build-up of positions post the outcome of elections,” said Rajesh Palviya, senior vice president research (head technical and derivatives) at Axis Securities.
Velayudhan said the upside for the Nifty 50 is likely capped at 23,400/23,500 points level. However, he added that in case the incumbent government gets a strong majority, there is a possibility that these levels are taken out.
Experts said most of the short positions of FPIs would be hedges and that it should not be seen as speculative bets.
Ahead of the counting of votes on Tuesday, some clarity is likely to emerge over the weekend with the release of exit polls after the last phase of voting.
Since the six-week long election began, Sensex has risen 2% despite all the volatility. The benchmark index snapped a five-day losing streak on Friday and rose 75.71 points or 0.1% to 73,961.31 points. Similarly, the Nifty also rose 42.05 points or 0.2% to 22,530.70 points.
The gains have been driven by domestic investors as FPIs continued to pull money out of the market. While FPIs have net sold shares worth over Rs 34,500 crores, domestic institutional investors have pumped in over Rs. 99,900 crores.