Amid global mayhem, ultra HNIs’ bullish market bets at record highs

Ultra high networth investors (UHNIs), HNIs, and corporates have taken the largest-ever contrarian bets to the hedged positions created by foreign institutional investors (FIIs) on Nifty and Bank Nifty futures, implying their bullish bias amid a slew of negative global cues such as the escalation of the Ukraine war and rising interest rates globally to tame inflation.

On 10 October, when FIIs remained cumulative net sellers of 110,030 index futures contracts (Nifty and Bank Nifty) to hedge their cash market portfolios, UHNIs, HNIs, and corporates, categorised as Client by NSE, were net buyers of a whopping 156,138 index futures contracts on an outstanding basis. This is the highest-ever cumulative position that has been held by these investors, cites research firm IndiaCharts.

Despite the Nifty and Sensex cracking by almost 1.5% each on 11 October, these investors retained 155,997 long (bullish) bets against FIIs’ 120,916 short (bearish) contracts.

“(It) goes to show that rich investors and corporates are taking a radically contrarian view to FIIs who have turned cautious amid rising global market uncertainty surrounding Ukraine and a strongly hawkish US Federal Reserve,” said Rohit Srivastava, founder, IndiaCharts. “Going by their bias they expect market consolidation rather than a catastrophic collapse.”

FIIs who hold around a $565 billion-strong portfolio of Indian equities hedge their cash positions at times of uncertainty by net selling index futures. If the markets fall, a reduction in the value of their stock portfolios is offset by the gain in the futures. Rich investors, on the other hand, take on the risk that FIIs seek to cover themselves against by going long index futures.

If the markets fall, rich clients would be hit by high losses. As they hold cash market stocks and long futures, a drastic fall could expose them to a double whammy. Analysts said they also have the wherewithal to hold on to bullish bets even if the market goes against them in the short term, as they have deeper pockets than lay retail investors.

“HNIs and corporates aren’t being bullish for a lark,” said Siddarth Bhamre, EVP (research head) at Religare Broking. “FIIs’ actions, on the other hand, can’t be classified as naked bearish either. Rather, these are hedges to protect the value of their portfolios. They haven’t sold as much in the cash market, which is why India remains a relative outperformer among emerging markets (EMs).”

The MSCI India Index, which FIIs closely track, has generated gross returns of almost 7% in the three months through September 30. However, MSCI EM Index has given a negative gross return of 11.42% over the same period.