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Mint
08-05-2025
- Business
- Mint
Caution rings among investors as India -Pak tensions escalate
Mumbai: Markets which had so far discounted a full-fledged war between India and Pakistan seem to have raised a note of caution in the last two-and-a-half hours of trade on Thursday, when news surfaced of India thwarting Pakistan's missile attack on 15 of its military installations on the intervening night of 7-8 May. The escalation followed multiple air strikes conducted by India on Pakistan and Pakistan-occupied Kashmir in the wee hours of Wednesday to avenge the massacre of 26 tourists in Pahalgam by Pakistan-backed terrorists on 22 April. The aggregate Nifty put-call ratio (PCR) hit 1.89 on Thursday, the highest reading since the data has been collated on this variable from 1 April 2021, by analytics firm IndiaCharts. Simply put, this means for every 100 calls traded on Thursday, 189 puts changed hands. When more puts are traded relative to calls, it reflects heightened caution among investors and traders who demand more of them. While buyers wanted more of them, sellers refrained from selling them as many by end of the day, given that they would lose hugely if the Nifty falls on Friday or next week. Though volumes were high during the day, put sellers squared off their positions by the end of day, fearing volatility ahead. This became evident in the outstanding or open interest put-call ratio dipping to a provisional 0.86 on Thursday from 0.97 a day earlier-a clear sign of heightened volatility in the sessions ahead. Volumes refer to the number of contracts traded during the day and open interest refers to positions carried forward. While put-to-call volumes hit a multi-year high, the open interest PCR fell, reflecting fear among option sellers of carrying forward short put positions. If the Nifty falls in sessions ahead, the put sellers will be subjected to huge losses. That's why they sold fewer puts than calls by the end of day, a signal of heightened caution, said market analysts. 'While panic didn't strike stock market investors today (Thursday), following news reports of a rise in escalation between the two sides, they surely became more cautious, something which we didn't see since the Pahalgam attacks," said Rohit Srivastava, founder of IndiaCharts. The heightened caution was also reflected by fear gauge India Vix rising by 10.21% to 21.01, the highest since 7 April when Vix surged 65.69% to 22.79 in the wake of the global trade war intensifying. Vix rises when uncertainty increases and falls when investor confidence increases. A rise in Vix raises the price of puts relative to call options, while a fall means put prices rise less than calls. Weekly Nifty options now indicate a range of 2.17% up or down from 24300. The Nifty closed at 24,273.8 on Thursday, down 0.6%. Data indicates a range of 23,771-24,829 over the next few sessions, with a bias for the downside. Market expert Swarup Mohanty, vice chairman and chief executive officer of Mirae Asset Investment Managers, said his policy was to stay invested in Indian equities at all times and any drawdown is used to invest in 'quality'. Nilesh Shah, managing director of Kotak Mahindra Asset Management Company Ltd, expects any potential conflict between the two nuclear-armed neighbours to be limited and not prolonged despite the two sides climbing up the escalatory ladder on Wednesday and Thursday. He expects the markets to stabilise in light of a limited conflict.
Mint
08-05-2025
- Business
- Mint
FPIs turn bullish on index futures amid escalating India-Pakistan tensions, but risks loom
MUMBAI : Foreign portfolio investors (FPIs) are showing growing confidence in India's markets, undeterred by the escalating tensions between India and Pakistan. On the heels of India's air strikes across Pakistan and Pakistan-occupied Kashmir, FPIs made a notable shift by turning net long on index futures (Nifty and Bank Nifty) for the first time in seven months. While this move signals optimism, analysts warn that any retaliatory action from Pakistan could change the market's trajectory. On Wednesday, FPIs turned net long by 458 contracts—their first net long position since 4 October, when they held 27,662 contracts, according to IndiaCharts. Read this | FPIs bet on limited Nifty movement amid simmering India-Pakistan tensions This shift in index futures follows their return as net buyers in the cash market after six months of relentless selling, during which they offloaded ₹2.85 trillion worth of Indian shares through March, NSDL data shows. The reversal suggests a partial diversion of funds from the US to other markets amid a weaker dollar and trade war uncertainties. FPIs' renewed buying has helped fuel a 12.3% rebound in the Nifty, which rose from a low of 21,743.65 on 7 April to 24,414.40 by Wednesday's close. In April alone, FPIs invested ₹3,243.03 crore in the cash market—their first net buying since October—with additional inflows of ₹7,954.17 crore in May, per NSDL data. Their buying of index futures reflects a shift in sentiment toward India after a prolonged period of bearishness in both the cash and derivatives segments. This shift comes amid ongoing global tariff tensions and India's retaliatory air strikes on Pakistan following the 22 April terrorist attack in Pahalgam, where 26 people were killed, according to the defence ministry. "Markets haven't really priced-in any retaliatory action from Pakistan, after the Indian air strikes," highlighted Nilesh Shah, managing director, Kotak Mahindra Asset Management Company, attributing the strong institutional flows to investor optimism. But he warned that any escalation from Pakistan could negatively impact the markets. Read this | Tensions are rising on the border but FPIs aren't worried Rohit Srivastava, founder of IndiaCharts, said he would wait to see a few more sessions of FPI behaviour before concluding that there's been a "change of slant" in the cash and derivatives segments. FPIs had been building short positions in index futures since October, reaching a record high of 200,890 contracts by 24 February this year. Since then, they have been steadily closing out those bearish bets, eventually turning net long on Wednesday. Before the recent shift, FPIs held a record high long position of 130,719 contracts on 4 July last year, per IndiaCharts data, adjusted for the Nifty lot size revision to 75 shares from 25 shares effective November. Also read | Will lower tariffs lure back FPIs from other emerging markets? Srivastava noted that the Nifty is approaching a key resistance level of 24,545, representing a 61.8% retracement of its fall from a record high of 26,277.35 on 27 September 27 to the 7 April low. The index would consolidate unless it "decisively breaks" the important resistance of 24,545, according to Srivastava.
Mint
30-04-2025
- Business
- Mint
FPIs bet on limited Nifty movement amid simmering India-Pakistan tensions
After a sharp 12% rally in under two weeks, foreign portfolio investors (FPIs) are positioning for a period of limited market movement. On Tuesday, they executed a complex options strategy, known as 'iron butterfly', suggesting they expect the Nifty 50 to remain range-bound between 24,100 and 24,900—just 1.6% on either side of the 24,500 level—through May. To hedge against a possible breakout or breakdown triggered by geopolitical events, they purchased a 24,000 put and a 25,000 call. The trade came on a day of rising tensions: Prime Minister Narendra Modi gave the Indian armed forces a free hand to retaliate against Pakistan following a terror strike in Pahalgam that killed 27 people, including a foreign national. The Nifty closed flat at 24,336 on Tuesday, having staged an almost 12% recovery from a multi-month low of 21,743.65 on 7 April. Analysts broadly expect the index to consolidate around current levels through May—unless geopolitical tensions spiral. The iron butterfly strategy reflects an expectation of limited movement, with potential movement capped at about 1.6% on either side of 24,500, even as risks of military conflict linger. Read this | Tensions are rising on the border but FPIs aren't worried The 'smart money"—meaning institutional players—are using a strategy called the 'iron butterfly', which involves selling a call and a put of the same strike, and buying calls and puts further away from that level, said Kruti Shah, quant analyst at Equirus. What makes the move even more unusual is the positioning pattern: FPIs were net sellers of both index calls and puts—on Nifty and Nifty Bank —even as geopolitical tensions escalated, a backdrop that would typically warrant hedging for volatility. Their net short position on index calls stood at 17,795 contracts, while their net short put position was at 46,075 contracts, according to exchange data. This is a rare trade as FPIs tend to be net long both index calls and puts, noted Rohit Srivastava, founder, IndiaCharts, an analytics firm. In options trading, the seller of a call doesn't expect the market to rise above the strike price plus the premium received from the call buyer, while the seller of a put doesn't expect the market to fall below the strike price minus the premium received from the put buyer. While such trades typically signal expectations of limited market movement, FPIs are using a complex options strategy to hedge against the risk of markets moving beyond their expected range over the next month. Read this | Market shift: Retail investors and HNIs turn bearish on index futures following Pahalgam attack According to Rajesh Palviya, head of derivatives research at Axis Securities, the trade reflects that foreigners are discounting a 'major conflagration at the border." FPIs sell a 24,500 call and a 24,500 put, earning a total premium of ₹ 862 per share (each Nifty contract has 75 shares). To cap potential losses, they buy a 24,000 put and a 25,000 call, paying ₹ 464 per share. This leaves a maximum potential profit of ₹ 398 per share ( ₹ 862 - ₹ 464), which materialises only if the Nifty closes exactly at 24,500. Any move outside this strike reduces profit. Losses are limited to ₹ 100 per share if the index breaks below 24,100 or above 24,900, thanks to the protection from the outer options. For example: If the Nifty drops to 23,900, the loss from the lower breakeven point at 24100 is ₹ 200. But, as the purchased 24,000 put gains ₹ 100 in value, the maximum loss is restricted to ₹ 100. Also read | Vijay L. Bhabwani's Ticker: Follow-up buying needed as short covering lifts Nifty, Bank Nifty past resistance If the index rises to 25,100, the loss from the upper breakeven point of 24,900 is ₹ 200, but the 25,000 call gains ₹ 100 in value, again capping the loss. 'The risk-reward ratio is 1:4, that is for every rupee spent, you expect a return of four rupees, making the strategy viable," said Equirus' Shah.
Mint
25-04-2025
- Business
- Mint
Market shift: Retail investors & HNIs turn bearish on index futures following Pahalgam attack
Retail investors and high-net-worth individuals (HNIs) turned net bearish on index futures on Friday for the first time in over six months, just days after Pakistan-backed terrorists killed 26 Indians and a foreign national in Kashmir . Yet, market participants say the move doesn't signal a broader sell-off—at least not yet. These investors—who've played a key role in cushioning foreign portfolio investor (FPI) outflows over the past year—held cumulative net short positions of 20,871 contracts across Nifty and Nifty Bank futures. The last time they were net short was on 3 October, during a sharp global correction triggered by surging US bond yields and a rising dollar. The shift follows a rapid 11.5% rebound in the Nifty from a 10-month low earlier this month. The timing—coming so close to a major escalation in Kashmir—has raised questions over whether this marks routine caution after a rally, or early signs of geopolitical jitters. Veteran investors, however, are discounting the latter for now. "There could be a knee-jerk reaction to any reprisal by India, which I think is possible given the dastardly attack, but so far there seems to be no discernible signs of panic," said well known investor Vijay Kedia . Kedia believes the markets bottomed out earlier this month amid global uncertainty and are now likely to consolidate following the sharp rally. Indeed, the benchmark Nifty 50 plunged 17% from a record high of 26,277.35 on 26 September last year to a 10-month low of 21,743.65 on 7 April, before staging a sharp rebound of 11.5% in just 10 sessions to close at 24,246.70 on Thursday. "We have seen in the past that retail/HNI investors begin to turn short when markets rally sharply, only to turn buyers when a correction gets under way," said Rohit Srivastava, founder of IndiaCharts. Veteran wealth manager Nilesh Shah, managing director, Kotak Mahindra Asset Management Company, also believes that markets haven't yet "reflected any signs of worry" after the Pahalgam attack, despite the shorting by retail investors and HNIs. A seasoned fund manager, speaking on condition of anonymity, said he wasn't certain of a "souring in sentiment" immediately after the Kashmir attack, but cautioned that any "rise in geopolitical tensions" following the recent sharp rally would likely be seen as a "negative" by the markets. Retail investors and HNIs held record net short positions in index futures—98,623 contracts—on 4 July last year, a month after markets surged 11% from 21,884.50 on election results day (4 June 2024) to 24,302, according to IndiaCharts. Also read: India's gold demand stalls as prices spike, futures trade at discount amid volatility As of Thursday, FPIs and proprietary traders were net short on index futures, holding 24,840 and 22,101 contracts, respectively. In contrast, domestic institutional investors (DIIs) remained net long with 67,812 contracts. Index futures are commonly used by investors to hedge against potential market volatility or to take speculative positions based on expected uncertainty. Between October and 24 April, FPIs sold ₹ 2.97 trillion worth of equities in the cash market, while DIIs offset those outflows by purchasing ₹ 3.93 trillion worth of stocks, as per NSDL and BSE data.
