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Business News/ Market / Mark-to-market/  FIIs increase their short positions sharply
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FIIs increase their short positions sharply

FIIs have been heavy sellers of Indian equities this month, although this isn't evident from the numbers reported by the capital markets regulator

Data released by National Stock Exchange shows FIIs increased short positions in index futures contracts by Rs2,304 crore and cut long positions by Rs2,346 crore. Photo: Hemant Mishra/MintPremium
Data released by National Stock Exchange shows FIIs increased short positions in index futures contracts by Rs2,304 crore and cut long positions by Rs2,346 crore. Photo: Hemant Mishra/Mint

Foreign institutional investors (FIIs) have been heavy sellers of Indian equities this month, although this isn’t evident from the numbers reported by the capital markets regulator. Reported numbers suggest FIIs made net purchases worth 2,723.68 crore so far this month. But if one were to exclude the investment of 5,200 crore or so they made through block deals in Infosys Ltd, it turns out they sold shares worth nearly 2,500 crore.

But again, this is just the tip of the iceberg. Some of them increased short positions in the equity derivatives segment by a considerable amount. Data released by National Stock Exchange (NSE) shows FIIs increased short positions in index futures contracts by 2,304 crore and cut long positions by 2,346 crore. Put together, net long positions were cut by 4,650 crore, or by nearly a third compared with those at end-November.

Short positions taken by buying index put options increased by as much as 8,020 crore during the same period. And long positions taken through index call options were cut by 2,537 crore.

An index call and put option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell a basket of stocks, such as the benchmark Nifty, at an agreed-upon price and before a certain date.

Just prior to this bout of selling, foreign investors had been extremely bullish on Indian equities. Edelweiss Securities Ltd’s quantitative research team said in a note to clients earlier this month that short positions by FIIs in the index futures market are hovering near all-time lows.

FII shorts amounted to only 6.4% of their total index futures positions in end-November. It has now risen to 20.3%. Needless to say, the large increase in the amount of hedges and short positions is a tad disconcerting.

The writer does not own any shares in the above mentioned company.

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Published: 17 Dec 2014, 07:43 PM IST
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