FPIs selling in F&O hits 2-year high; but rollovers hint at optimism ahead

Foreign investors net sold ₹14,452 crore, and ₹25,831 crore in stock & index futures, respectively in July; however, F&O rollovers hint at likely optimism going ahead.

Global funds have turned increasingly bearish on Indian equities, with their monthly sell-off in the domestic derivatives market hitting a 2-year high amid muted earnings seasons and rising US tariff concerns.  Foreign Portfolio Investors (FPIs) were net sellers in the stock futures to the tune of ₹14,451.7 crore in July thus far, the highest monthly outflow since August 2023. That apart, foreign investors net sold index futures to the tune of ₹25,831.2 crore, the highest since October 2024.  This marks the third consecutive month of net selling in the derivatives market, following outflows of ₹1,132 crore in June and ₹4,547.43 crore in May (stock futures), according to data compiled by Business Standard.  In the cash segment, FPIs have remained net sellers for the last eight straight sessions through Wednesday, with total outflows of ₹25,122.02 crore. So far this month, they have sold stocks worth ₹17,578 crore, the highest monthly outflow since February this year.  The FII long-short ratio in index futures is currently around 16 per cent, indicating that 84 per cent of their positions are on the short side, as per NSE derivatives data.  The sell-off in both cash and derivatives segments has been largely driven by heightened tariff tensions, analysts said. The recent announcement of 25 per cent tariffs on Indian exports has only added to the short-term uncertainty, which is likely to prolong the current market weakness.  Tariff tensions, geopolitical concerns, and slightly lower-than-expected earnings have weighed on sentiment, according to Chandan Taparia, head of technical and derivatives research at Motilal Oswal Wealth Management.  With the tariff overhang and a lack of strong earnings support, most traders were betting against the market, Rajesh Palviya, Senior VP Research, Axis Securities, said. The volatility was further amplified by the expiry of the monthly derivatives series and the US Federal Open Market Committee (FOMC) meeting outcome. 

Will FII outflows continue?

  Markets dislike uncertainty, but once the event is known, in this case, the tariff rate, some clarity emerges, Taparia said. A key positive is that despite heavy FII selling, Domestic Institutional Investors (DIIs) continue to provide support, driven by steady Systematic Investment Plan (SIP) flows, he added.  Although the 25 per cent tariff has now been officially announced, some level of uncertainty still lingers, analysts cautioned. With doors still open for negotiations, any revision could act as a positive trigger for the markets, Palviya said. 

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F&O Rollovers

  The market-wide July rollover stood at 80.4 per cent, as of July 30 (Wednesday), exceeding the 3-month average rollovers of 79.7 per cent and the 6-month average of 78.7 per cent, said Axis Securities in a report.  This robust market-wide rollover suggests broader confidence and a sustained willingness among participants to roll over positions into the next series, reflecting a generally optimistic outlook across the broader market, the brokerage firm stated.  Among individual stocks, Eicher Motors, UltraTech Cement, Indian Bank and LIC have witnessed higher rollovers thus far. Axis Securities report suggests that the high rollovers indicate sustained or increased bullish conviction and strong participation in these specific stocks, suggesting continued investor interest and potential for positive momentum in the upcoming series.  Conversely, RBL Bank, Inox Wind, Muthoot Finance. NMDC and Indian Energy Exchange saw lower rollovers; hinting towards a decline in speculative interest, or shift in investor preference away from these scrips.