Data from index futures reveal that foreign institutional investors (FIIs) and retail traders are optimistic about the National Democratic Alliance (NDA) coalition securing a decisive win in the upcoming general election, set for June 4. Historically, in the 2014 and 2019 elections, the Nifty 50 index experienced gains in the two weeks leading up to the elections, only to see significant intraday gains evaporate on the day of the verdict. Three days post-verdict, the Volatility Index (VIX) halved as the premium for event-based volatility dissipated, noted Rohit Srivastava, founder of IndiaCharts.
Currently, both FIIs and individual traders hold net long positions on index futures, marking a stark contrast to the weeks preceding the election results in 2014 and 2019. During those periods, FIIs were net short on index futures while individual traders were net long.
“FIIs were net short at the start of the month and have only recently covered their short positions,” Srivastava told Moneycontrol. He added, “In the last week, the bets have shifted from expecting a negative surprise to anticipating a victory for the NDA.” This shift is notable as it is uncommon for FIIs and individual traders to align on the same side of the trade ahead of election results.
According to Sudeep Shah, head of technical and derivative research at SBI Securities, the long-short ratio of FIIs’ index futures now stands at 52 percent. In contrast, in the cash market, FIIs have net sold Rs 40,777 crore since May 1.
Some analysts suggest that the long positions in index futures may serve as a hedge against FIIs’ bearish outlook on the Indian market. Despite selling shares, they could still profit from their long positions in index futures if the market rallies following the election verdict.
