Did FIIs not buy on Friday?

Friday, the 20^th reminded me of 18^th May 2009, when Nifty was locked in 20% upside circuit. This was the biggest move in Nifty since then. After lot of piecemeal efforts by the F.M. for a month now, finally she hit the correct cords. And markets clearly loved every jingle of that music and celebrated. The move is being regarded as one of the biggest since 1991. Clearly, we had another budget sort of event of Friday.

Nifty ended 5.3% in green, midcap index was up 6.4% while small cap index gained 4.5%. Sectorally, Auto index was up 10%, Banking 8%, Financial services 8% and Metals 5.6%. Defensives like IT and Pharma lagged but still FMCG index gained nearly 4%. Cash market volumes trebled to nearly Inr 88,000 crores and delivery volumes quadrupled to Inr 24000 crores. In percentage terms also delivery marked was 37% vs average of 30%. Undoubtedly, there was a heavy buying all across. This was expected to be reflected in the provisional FII and DII daily activity numbers. While net buying from local houses of Inr 3000 crores was convincing the FII numbers were a dismal Inr 35crores worth of buying (the final figures will be available on Monday). Just managed to stay positive. So, what happened there? Did they not buy? Let’s dig up the numbers a bit more.

FIIs have been heavily short on Index futures in India. In August, the net FII short position on Index futures touched all time high of Inr 11,000 crores. Empirically, it is seen that as FII next positions in Index futures starts going into negative, markets are near a bottom.

The net negative positons of FIIs in Index futures at the end of 19^th September was 1,23,451 contracts which reduced 64,680 contracts at the end of 20^th September. Implying, a covering of nearly Inr 5000 crores. Also, there was a FTSE rebalance, which lead to selling of another Inr 4000 crores. This is typically what happens when the move is extremely sharp, participants tend to first use index derivatives to join the rally or cover their positions. That’s exactly what FIIs did. Instead of thinking of what to buy they went ahead and covered their Shorts, while local participants focused on stock specific buying.

Below table highlights the sub-segment wise open interest changes as per participants which will give one a complete picture of what transpired. Negative number shows reduction in net positions (long – short) i.e either long unwinding or further shorts, while positive figure shows addition in net positions (long – short) i.e short covering or long addition.

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