Foreign investors cut bearish bets on bank shares ahead of RBI meeting

Foreign investors are reducing their bearish bets on banking stocks in Mumbai as they await the Reserve Bank of India's policy decision on Wednesday. Market participants expect the central bank's rate-setting committee to raise the repo rate.

Market Shifts

Between 7 September and 25 September, foreign portfolio investors sold net Bank Nifty active futures contracts worth 1,980 crore rupees on the National Stock Exchange. Over the next five sessions through Monday, these investors bought back 906 crore rupees worth of those short positions. This short covering brought their incremental net shorts down to 1,074 crore rupees by 5 October. Their cumulative net short position in index futures also dropped from 62,706 crore rupees on 25 September to 54,444 crore rupees on 5 October.

Industry Views

Experts note that improving credit prospects and comfortable liquidity support a potential rally in banks following the policy outcome. Nirav Karkera, head of research and fund manager at W by Groww, pointed to the FCNR(B) raise as a key factor for bank liquidity. S.K. Joshi, a consultant at Khambatta Securities, added that a rate hike can initially help banks improve their net interest margins because loan rates reprice faster than deposit rates. Swarup Mohanty, vice chairman and chief executive officer of Mirae Asset Investment Managers India, stated that domestic buying paired with further short covering will prove positive as long as the policy brings no negative surprises.

Context

Foreign investors often use index futures to hedge their large underlying equity portfolios against market volatility and external pressures like rising oil prices. Financial services account for about 30 percent of the total Indian equity assets held by these investors, making banking trends central to overall market direction.