Foreign investors raise bets that India stock market rally may stall

Foreign investors are becoming more cautious about the Indian stock market, indicating a three-month rally may run out of legs despite retail traders growing optimistic, according to monthly derivatives data analysed by two brokerages, reports Reuters.

The Nifty 50 has risen about 12 per cent from March through May, largely due to better-than-expected corporate earnings and easing global trade risks. That is nearly double the 6.6 per cent gain in the MSCI Emerging Markets index in that time.

Foreign portfolio investors (FPIs) pumped $2.66 billion into Indian equities over that period and cut their short positions on the Nifty. A short seller borrows stock at a higher price betting its value will decline, at which point they buy the stock and pocket the profit.

However, FPIs have started the June derivatives series-which runs from May 30 to June 25 -- with about $2 billion in Nifty index futures shorts, the highest since February, according to Nuvama Alternative and Quantitative Research.

In contrast, retail investors and high-net-worth individuals (HNIs), called the client category, turned bullish with long positions worth $1.54 billion on Nifty futures, compared with $546 million in shorts from early May.