FIIs Turn Net Sellers on Budget Day

On July 23, 2024, after the BJP formed the new government, the complete budget was declared, and due to that, we have seen a selling rally in the Indian stock market. Highlights of Budget 2024 were the hike in long-term capital gains tax (LTCG) to 12.5%, which was previously 10%, and the short-term capital gains tax (STCG) to 20%, which increased by 5% as previously it was 15%. Also, a hike in the Securities Transaction Tax (STT) to 0.02% for futures trading and 0.1% in the case of options. As per the budget, the government wants to control retail participation in the Indian stock market by increasing the tax, which directly helps the government collect more tax, whether traders are making profit or loss. The most important thing is that long-term capital gains are increasing, which is surprising because, in addition to long-term holding risk, which only the government wants, they also want to collect 12.5% tax.

FII’s Offloading of Stocks on Budget Day:

Foreign institutional investors (FIIs) turned net sellers in the Indian cash market on Tuesday after six days. According to data available on the National Stock Exchange (NSE), foreign portfolio investors offloaded stocks worth Rs 2,975.3 crore on budget day, while domestic institutional investors (DIIs) purchased shares worth Rs 1,418.82 crore. According to information available on the National Stock Exchange (NSE), foreign portfolio investors sold stocks worth Rs 2,975.3 crore on budget day, while domestic institutional investors (DIIs) purchased shares worth Rs 1,418.82 crore.  This month, Rs. 22,135.5 crore worth of shares were bought.

In the derivatives segment, FIIs net sold 54,771 contracts of index futures for a consideration of Rs 3,659.88 crore on budget day. FIIs net sold 32,919 contracts of Nifty futures and 19,283 contracts of Bank Nifty futures.  The long-short ratio for FII index futures decreased significantly to 2.8:1, as opposed to its high of 5.2:1 on July 5. According to this ratio, FIIs have approximately 3 long positions in index futures for every bet on the short side. FIIs experienced a decrease in their long index futures positions from 73.60 percent to 26.40 percent, while their short positions increased from 26.40 percent.

Conclusion: On Budget Day, foreign institutional investors had a very good opportunity to sell off stocks. Consequently, they offloaded stocks. It is expected that once they identify a favorable opportunity, they will engage in buying again. This pattern has become common, and traders are now accustomed to it.

Disclaimer: This blog has been written exclusively for educational purposes. The securities  mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.