Indian Traders Short On Markets Ahead Of First Full Budget Of Modi 3.0

A sense of despondency has gripped India's domestic traders in the stock market ahead of Finance Minister Nirmala Sitharaman's budget presentation that will mark the beginning of Prime Minister Narendra Modi's third term in the government. On July 22, the FM will present the first full year budget of the incumbent government, after returning to power in June. Data shows that domestic traders are holding short positions or bearish bets on the index futures to the tune of 2.12 lakh contracts, which is just 28 percent lower than the highest bearish bets they held earlier this year at 2.95 lakh contracts (all time highest short positions being 5.83 lakh contracts on September 22, 2016). The current net short positions are the biggest since 2017. It simply means that domestic traders are going into the budget with extremely low expectations, experts said.

Benchmark Nifty index had crashed to around 22,000 levels on June 4 as the BJP was seen falling short of a simple majority to form the government for the third consecutive term. But in the subsequent days as PM Modi took oath for the third time, the Nifty index slowly moved past 24,000 markets to touch a new lifetime high of 24,854. As the markets are hovering near their lifetime high levels, domestic brokerages and traders are mainly giving sell calls on the back of the recent rally.

"While markets took off on a lot of optimism after the election results - growing pessimism ahead of the budget is similar to the growing pessimism ahead of the election results. Massive bout of short covering will come if ," said Rohit Srivastava, Founder, Strike Money Analytics and Indiacharts.

So far this month the FPIs have made net purchases to the tune of Rs 21,664 crores in the cash segment while DIIs (domestic institutional investors) have been mute spectators with buying worth only 779 crores. For July, the FPI net buying in the cash market is the highest monthly flow into the cash market for the calendar year. In June the FPI net inflow into the cash market was a mere 2037 crores while DIIs had pumped in Rs 28,633 crores. In May when FIIs were sold cash equities worth Rs 42214 crores, the DIIs were net buyers of Rs 55,733 crores.

According to Srivastava, the budget may only offer direction in terms of which sectors to focus on. "The government is unlikely to kill its own market rally. All it can do is channelise the energy in the right direction. Money will chase the parts of the market that are still fairly valued and keep the positive momentum going," Srivastava said.

In contrast to the domestic players, foreign portfolio investors (FPIs) are going into the budget with a buoyant mood and hold long positions. Data shows, FPIs hold net long or bullish bets on index futures to the tune of 3.58 lakh contracts and their recent net long high was 3.92 lakh contracts on July 4.

Focus could be PSU stocks in the upcoming budget and the following weeks as the Modi government prepares for land monetization of government companies. Government companies are the biggest landowners in the country and any move to put these real assets on sale will net a huge windfall to the government outside the budgeted expectations, experts say.

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.