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MUMBAI : Foreign institutional investors doubled down on Indian shares in November, and are now holding the highest quantity of bullish bets on Nifty and Bank Nifty futures in three years and seven months.

Analysts, however, cautioned that the pattern reflects momentum buying rather than value-based investing.

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FIIs purchased shares worth 45,152 crore last month and were net purchasers of 102,664 index futures contracts as of 30 November, the most net bullish position since 26 April 2019 when they held 126,827 contracts.

“The positioning indicates that they (FIIs) are overly bullish," said Rohit Srivastava, founder of data analytics firm IndiaCharts. “Given their positioning, there might be more steam left in this rally, but I am not comfortable buying at these levels. It’s more momentum-based buying, rather than value-based," he added, putting medium-term support for Nifty at 17,925.

The Nifty index hit a record of 18,887.6, and the Sensex surged to a lifetime high of 63,583.07 on Thursday before paring some gains to close at 18,812.5 and 63,284.19.

“They are chasing momentum, and it’s possible that the index could rise another 3-4%," said Rajesh Baheti, director of Crosseas Capital, one of Dalal Street’s largest jobbing companies. “The market has priced in a slower pace of rate hikes by the US Fed for the short-term, so the magnitude of index movements should moderate hereon."

Momentum buying means that when the market rises, investors buy more. Generally, FIIs hedge their cash market portfolios by selling index futures. But this time around, they have net purchased index futures as well. An index future allows an investor to buy or sell an index at a preset price for delivery on a future date. Since an index cannot be delivered, index contracts are cash-settled.

India has outperformed most emerging markets (EMs). In the 10 months to October, the MSCI India Index, tracked by foreign funds to allocate investments in Indian shares, gave a negative gross return of 6.99% against the MSCI EM Index’s negative return of 29.15%.

However, the Nifty has risen 24% from its 52-week low of 15,183.4 in June. Against this, the Shanghai Composite Index has risen 10.5% from its 52-week low in April.

“The rise in FII buying is because of the price momentum and the fall in volatility," said Chandan Taparia, derivatives head at Motilal Oswal Financial Services. “I expect the short-term range in Nifty at 18,500-19,200."

“Hot money is chasing bullish momentum in indices rather than stocks now," said Shrikant Chouhan, head of equity research (retail) at Kotak Securities. He bases his views on the fact that FIIs were not bullish on index futures in August despite having purchased 51,204 crore worth of shares in the cash market, the highest in 20 months.

Rajesh Palviya, derivatives head, Axis Securities, termed the market a “buy-on-dips" one and advised investors not to get carried away with the FII buying but to wait for a correction until 18,400-18,500 to enter for the short term.

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