Markets gain on Fed, SVB closure; FPIs ready to fall

after buying shares Foreign portfolio investors (FPIs) sold a net amount of Rs 13,540 crore in the month ended March 9. 2,061 crore shares on March 10, coinciding with US labor market data for February and the SVB fiasco. While US job growth exceeded expectations, wage growth slowed, presenting a mixed bag of data. So far in the year 2023, FPIs have sold shares worth Rs. 20,606 crores.

In addition to selling in the cash market on Friday, FPIs bought more index put options on Thursday and Friday, allowing them to sell Nifty at pre-agreed prices. Proprietary traders who provide liquidity to the markets, as well as increased selling of index call options, indicated that they are denying the market a boost this week.

FPIs’ cumulative buying of index puts increased by 70,307 contracts to 410,928 contracts in the two sessions till Friday. During the same period, prop traders sold 177,417 more calls, for a total of 251,614 contracts sold. Put options cover losses in the FPI’s portfolio when the market declines. Call options lose value when the market declines rather than rises, which helps traders capture the premium paid by call buyers.

According to Rohit Srivastava, Founder, IndiaCharts, the FPI and proprietary action ahead of the weekend underlines the caution by two important constituents in the market.

Joint Managing Director Salil Pitale said, “The change in the interest rate cycle in the US from March 2022 means that FPIs are currently preferring the safety and yield of the US dollar to the higher risk-return trade-off in emerging markets. ” Co-Chief Executive Officer, Axis Capital. “In the longer term, however, we remain super-bullish on India, given the multiplier effects of massive infra spending by the government, rapid digitization of Indian markets and a much wider consumer population.”

Market veterans remain cautious about the near-term outlook, as rising interest rates in the US raise the cost of money, hurt corporate balance sheets, and result in money outflows from emerging markets to the safety of the dollar. The shocking shutdown of a Silicon Valley bank has also rattled global markets and made the Fed’s decision on rate hikes more challenging.

“The US Fed is striking a delicate balance. Nilesh Shah, group president and managing director of Kotak AMC, said, “If they increase the rates, the borrower families, banks and the government will have to bear a heavy burden.” Time. They are raising rates at the fastest pace and withdrawing liquidity at the slowest, with the expectation that inflation will subside with a mild slowdown.

“However, we know that ‘running with the rabbits and hunting with the hounds’ is not always successful. If the Fed decides to slow rate hikes and live with higher inflation to support growth, This will benefit emerging market currencies and equities. However, whether the Fed does so is a million dollar question,” Shah said.

Kriti Shah, Quant analyst at institutional brokerage Equirus, said a “knee-jerk” reaction cannot be ruled out given the global news flow, but a correction to 17,200-17,000 levels would be a good “entry point” for investors. , with an Indian bank balance sheet in “greatest” shape.