Foreign Investors Turn Cautious Amid Budget & Global Uncertainty

Foreign investors have adopted a bearish stance ahead of the special budget session in India. After largely staying inactive, they have now started net selling in the market, signaling concerns over economic and policy uncertainties. The Union Budget’s focus on consumption rather than capital expenditure (capex) has also contributed to investor skepticism.

Adding to these worries, global factors like a potential trade war and the US monetary policy meeting on February 7 have made investors even more cautious. A key highlight is the executive orders signed by former US President Donald Trump, imposing tariffs on imports from Mexico, Canada, and China, which could have further fueled negative sentiment.

In the Indian markets, Foreign Portfolio Investors (FPIs) have been heavy sellers since October 2024, with over ₹2.38 trillion worth of shares sold by the end of January. Alongside cash market selling, they hedged their stock portfolios by taking short positions in index futures (Nifty & Bank Nifty) and selling call options, expecting the markets to remain range-bound or decline.

Experts point out that FPIs usually buy index call options to hedge against their short positions, but their recent aggressive shorting of call options suggests a strong bearish outlook. On budget day, their total short index call positions rose to 99,661 contracts, showing a lack of confidence in a market rebound.

Market Expectations & Resistance Levels

The Nifty index is expected to trade within a 1,000-point range (23,000-24,000), with a downward bias. Analysts suggest that for the market to turn bullish, it must break past 24,400-24,500, which had been a key resistance level where selling pressure began last month.

In summary, FPIs’ increased selling is driven by rising global risks, domestic policy concerns, and weaker corporate profitability. Their actions indicate that market volatility may persist, with a cautious outlook until global uncertainties ease and economic clarity emerges.