The expiry date of May stock futures contracts went off smoothly and the BSE Sensex actually closed 93 points up after gyrating this way and that for most of the day.
MUMBAI: The worst didn’t happen on Thursday. The expiry date of May stock futures contracts went off smoothly and the BSE Sensex actually closed 93 points up after gyrating this way and that for most of the day.
The bull-bear debate is far from settled, but it’s now clear who’s playing which role. Foreign institutional investors (FIIs) are the bears, and domestic mutual funds the bulls. On Wednesday, net mutual fund purchases in 2006 crossed the FII total for the first time. With FII cumulative sales since May 11 hitting Rs10,929 crore ($2.4 billion), they have erased around half the buying they did before May 11..
If mutual funds are seen as a proxy for retail investors, it is the ordinary investor who is bailing out the markets now.
So what’s causing FIIs to withdraw? “A big portion of recent FII selling is due to the cash-futures unwinding,” said Deepak Jasani, head of retail research, HDFC Securities. “When stock futures were quoting at a reasonable premium (to the underlying shares), the FIIs bought shares and sold futures and rolled their positions over from month to month. But with the rupee becoming weaker and stock futures becoming available at a discount, the FIIs have found it profitable to unwind their positions. This means buying stock futures and selling stock.”
The sustained selling is what has caused most of the volatility in the cash market. On Thursday, the Sensex opened 52 points down and swung 445 points between its intra-day high and low before settling at 10,666.32 points.
“The gain in the benchmark indices over the last hour of trading was more due to technical reasons,” said Yuvraj Sehgal, vice-president, equity derivatives, Brics Securities. “In the last three days, May stock futures were quoting at a huge discount and it made sense to buy into futures and sell cash. The expiry of the May series contracts saw people reverse their arbitrage positions, which means they bought cash and sold futures.”
Sehgal warned, however, that the markets may not remain strong on Friday.
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