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Equity benchmark Nifty index closed at 22,530 on May 31 and is more than 600 points away from a new lifetime high. But Foreign Portfolio Investors (FPIs) are most pessimistic regarding the outcome of India's 2024 national elections. Data shows that at 3.18 lakh contracts, FPIs are holding the largest amount of short positions in history of India's stock markets in terms of value of the contracts in index futures segment. In terms of numbers of contracts the position is third largest compared to 3.92 lakh contracts in March 2023 and 3.51 lakh in November 2023. But the short positions are the largest ever in value since the Nifty index is trading higher than previous two occasions.
According to the experts, this is the key to the biggest rally on election day witnessed by the Indian markets since 2009 as the FPIs will come to cover their short positions in case of PM Narendra Modi's return to power with a comfortable seat tally for the BJP.
In 2009, Sensex and Nifty had hit 20 percent circuit levels as Congress led UPA came close to majority mark and could form the government comfortably for the second consecutive time. Compared to this, if PM Modi and BJP won their third consecutive term with around 300 seats, as is being projected by the Satta Bazar, it could be anybody's immagination where the markets are headed. Just a 10 percent rally could see the Nifty rising by 2300 points, the next week itself.
As per data, FPIs entered the June month expiry with net short positions to the tune of 3,18,367 lakh contracts in the index futures segment. While many FPIs use derivatives to hedge their cash market holdings, the highest on record short bets is a clear indication that they are no longer confident about a Modi wave in the country. In comparison, the domestic traders are holding the largest ever bullish bets or long position in the market ahead of the poll results. These positions stood close to 3 lakh contracts. Unwinding by domestic traders will keep the runaway horse i.e. Nifty in check but will definitely not let the FPIs cover their loss at a lower level.
Brokers say the domestic positions are dominated by some of the big proprietary and high net worth traders, who are close to the political parties and may also possess insider knowledge of what the exit polls are going to predict. In March 2020 at the peak of COVID, the stock markets fell under the weight of domestic traders who had knowledge of the impending lockdown and not foreign investors, who have been caught on the wrong foot more often. In another instance, the FPIs had to rush to cover their huge short positions in December 2023 when BJP was declared as the winner in 3 state elections out of 4. Then the perception was the BJP may win only a single state, which had led the FPIs to mount berish bets. Next week's poll results may see a repeat of December 2023 in markets, analysts who are confident of BJP's comfortable victory say.
"Unlike 2014 and 2019, the FPIs seem confused about the election results and market direction this time. Just one trading session left ahead of election results and they are positioned for a huge loss of seats to the ruling party, which is baffling. Do the FPIs believe that PM Modi was going to lose? Technically, this kind of short position and the pessimism is a set-up for a massive rally in the coming weeks, once elections are discounted. Current mood of the FPIs seems like an overreaction if they believe that BJP will win less than 272 seats and fall short of the majority mark to form the government. FPIs are just behaving like uncooth and greedy day traders," said Rohit Srivastava, Founder Strike Money Analytics and Indiacharts.
BJP's Winning Odds
Let alone PM Modi's slogan for 400 seats, just 272 seats are required for any party to form government in India's 538 seat Parliament. Satta Bazar is predicting BJP's victory over more than 300 seats for which the odds are 1:1, the best odds the betting market is giving to any party currently. It clearly shows that BJP and its alliance partners are returning to power for the third consecutive 5 year term, which could be a record in itself. It is abundantly clear that there would be policy stability in India and the forward march of the country's foreign policy and GDP is likely to continue as the Modi government increases its spending on infrastructure and lowers India's import bill that will keep the country's current account deficit in check - reason enough for market euphoria. Satta Bazar has also started giving rates for BJPs win over more than 315 and 325 seats, although the odds are a bit higher but the bookies being forced to give such rate shows punters are willing to bet on a higher seat tally.
The fact that BJP may return to Parliament with a comfortable majority is based on some statistics. In 2019 elections, the BJP won 303 seats on the back of 37 percent vote share where 91 crore voters casted their votes. In 2024, the voting population has increased to 98 crores and BJP is only likely to improve its vote share in the wake of a higher voter turnout in absolute numbers. Considering this math, it is unlikely that BJP could fall short of the majority mark of 272 or its tally could fall below 2019.
Despite the heat wave across the country, nearly 64 crore voters are estimated to have come to the polling booths in 2024 compared to 60 crore voters who casted their votes in 2019. The increased number of voters in absolute numbers is a sign that BJP's vote share is unlikely to fall. This especially since there has been no major economic disaster in the last five years, despite the COVID pandemic, the GDP has only improved. Article 370, Ram Mandir, spending on the poor are just the cherry over the cream.
If the elections held in December 2023, where BJP won 3 out of 4 states, despite anti-incumbency and Rahul Gandhi's Bharat Jodo Yatra, give any indication of PM Modi's prowess, then BJP is returning to power with more than 300 seats. The slogan of Ab Ki Baar 400 Paar (this time we cross 400) could be part of PM Modi's mind games he often plays with the opposition parties, but Ab Ki Baar, Nifty 24000 Paar... could be a reality after Tuesday.
