FIIs’ Bullish Bets on Futures Signal further Market Upside

Hopes rise as Eurozone bailout money seen chasing emerging markets for higher returns     Foreign institutional investors (FIIs) net invested a huge . 1,568 crore in index futures last Friday, the highest inflow in nine months, on hopes that monies to be provided by Eurozone's proposed bailout fund to struggling banks in Spain and Italy would eventually chase emerging market equities for higher returns.  Analysts tracking FIIs said the huge investment into Nifty and Bank Nifty futures could help boost Indian equity markets by another 100-150 points from Tuesday's close. Their outlook is based on the fact that the spectacular 141-point rise in Nifty futures on Friday was followed by a 15% jump in open interest, or outstanding positions of FIIs, in index futures to . 12,603 crore.  A rise in price of a futures asset accompanied by a jump in OI indicates that traders are initiating long bets in a market.  "Overall risk on trade globally has emerged after the Euro summit," said Karun Mutha, senior vice president & head equity and derivatives advisory, HSBC InvestDirect Securities. "My advice would be to hold on to Nifty longs with a stop loss at 5100 for a target that's around 100-150 points from current levels."  Key indices closed slightly positive on Tuesday, even as broader sentiment remained bullish. BSE Sensex gained 27 points, or 0.15%, to close at 17,425 points. Nifty ended at 5287 points or up 0.18%. Gains were led by DLF, which surged 4.2%, and Bharti Airtel, which rose 3.1%. Hindalco Industries ended 2.3% up. Market breadth remained positive, with gainers beating losers 1728:1139 on BSE. Siddarth Bhamre, head-derivatives, Angel Broking, said markets could rally by another 100 points to 5400 in the near term. "The confidence and expectations of increased liquidity in the wake of the EU summit has generated momentum and we feel traders could ride it for the near term. I cannot say what will happen thereafter as we are assessing the situation continually."  However, some experts warn that the party might not last too long.  "Plush liquidity from monetary easing in the developed economies will definitely have a rub-off effect," said PVK Mohan, head — equity at Principal Mutual Fund. "However, past experience shows that subsequent quantitative easing policies have lesser effect on inflows into markets like India. Many long-only investors would take a re-look at India after domestic macroeconomic conditions improve."  Madan Sabnavis, chief economist, Care Ratings, agrees. He cited a recent World Bank report that estimates an 87% fall in net capital inflows into developing countries this year from 2010 and warns foreign investments into Indian equities could be impacted if the government does not implement its intent of keeping P-notes outside GAAR's ambit.