FIIs’ single day F&O addition at 11-year high

A dramatic surge in purchases of index futures contracts and in cash buying by foreign investors on Friday signalled a sharp improvement in their sentiment towards India. The bullishness became apparent after the US Federal Reserve cut its policy rates by an outsized 0.5 percentage points on Wednesday.

Market watchers said this could mean an extension of the latest leg of the rally that got underway after the Union election results were declared on 4 June.

Highest in a day

Foreign institutional investors (FIIs) net purchased an additional 135,601 index futures contracts—Nifty and Bank Nifty—on Friday from the previous session. This is the highest single-day increase on a non-expiry day in 11 years, per data analytics firm IndiaCharts.

“The last time a similar huge addition was seen on a non-expiry day was on 10 September in 2013 when FIIs added 135,813 contracts,” said Rohit Srivastava, founder of IndiaCharts.

This net addition comes on top of the provisional ₹14,064 crore purchase in cash shares by FIIs on Friday due to global index provider FTSE rebalancing its ‘All World Index’ and the lower rate cycle signalled by the US Fed.

“FII buying in cash and in derivatives suggests more legs to the rally after the Fed rate cut and signalling of a lower rate cycle,” said Andrew Holland, CEO of Avendus Capital Public Market Alternate Strategies.

While markets are pricing in a 50 basis points (bps) additional cut this year and 100bps in 2025, Holland believes the Fed could cut rates by a further 75bps this year in an attempt at “front loading” to ensure it is “ahead of the curve” to ensure a soft landing of the US economy.

Jump in cash, derivatives buying

Rajesh Palviya, technical and derivatives head of research at Axis Securities, expects the Nifty to test the 26,000 mark this week, which sees the expiry of the September derivatives contracts on Thursday. (Monthly derivatives contracts normally expire on the last Thursday of every month.) He expects support at 25,500.

“The huge jump in cash and derivatives buying suggests we are likely to test the 26,000 mark this week,” said Palviya, who agrees with Holland.

The counterparties to the FIIs’ net futures purchases are HNI/retail and proprietary traders, shows NSE data. HNI/ retail alone sold 108,222 contracts on Friday. This shows these two categories are not as bullish.

However, HNI/retail and prop traders have hedged themselves by selling index puts. If markets rise instead of falling next week, their loss on futures would be offset by the falling premiums of the put options.

IndiaCharts’ Srivastava attributed the contrarian view of retail/HNI and prop to their belief that markets might be close to topping out.