Foreign institutional investors (FIIs) have brought down their sales of Indian equities considerably this month, Securities and Exchange Board of India data show. For the first nine trading sessions of the month, up to 14 November, FIIs were net sellers of about Rs656 crore of equities in India’s cash market, which was more than offset by Rs978 crore worth of long positions in the futures market.
In contrast, they had taken net short positions worth Rs9,091 crore in October, Rs9,933 crore in September and Rs5,600 crore in August. To be sure, the slowdown in FII sales this month has meant the Nifty has declined by just 3% so far this month. But it’s still early days to say if the trend in the first two weeks of the month is reflective of the current FII mood. For one, sales in the cash market have picked up in the past few days, with provisional figures released by the stock exchanges for Monday suggesting that they were net sellers of equities worth Rs521 crore on Monday, after being net sellers of stocks worth about Rs600 crore last Thursday and Friday.
Besides, some derivatives analysts caution against making much of cumulative figures for FII activity in the futures market. That’s because FIIs not only engage in plain buying and selling in this market, but also take advantage of various arbitrage opportunities: reverse arbitrage between single stock futures and the corresponding stock (this means selling a stock in the cash market and buying in the futures market since most futures are quoting at a discount to the corresponding stock); arbitrage between Nifty futures quoted in India and that on the Singapore Exchange; and arbitrage that exists in buying a basket of single stock futures and selling Nifty futures. These arbitrage trades could at times mask what FIIs are really up to in the derivatives market.