A recent market study showed that foreign institutional investors, or FPIs, continued to pour money into Indian markets despite a massive terror attack on April 22. The attack on Pahalgam left 26 Indians and a foreign national dead, and both nations have massed troops along their borders. However, FPIs appeared unphased by the news, instead opting to unwind their huge bearish options contracts and purchase stocks in the cash market. • FPIs reduced their net index put option positions to 6,359 contracts on Friday, marking a significant change from 177,784 the day prior. Notably, they purchased more index puts than they sold, resulting in a net increase of 511,250 contracts from the previous day. • The total puts sold by FPIs on Friday were up from 250,793 the previous day, with a significant increase in selling intensity to protect their portfolios. • The gross figures suggest that FPIs sold many more index puts than they purchased, bringing down the net long figure by a substantial margin. • Experts attribute FPIs’ continued purchasing activity in the cash market to hopes of a bilateral trade agreement with the US, rather than concerns over a retaliatory strike by Pakistan. “It shows FPIs don’t expect the tensions with Pakistan to escalate into a larger conflict, at least in the short term,” said **Rajesh Palviya**, senior vice-president and head of derivatives at Axis Securities. “The recent data also suggests that FPIs are focusing on unwinding their bearish positions, rather than trying to take advantage of the situation to make a profit.”

However, **Nirmal Jain**, founder of IIFL Group, points out that markets have shown to be resilient during periods of conflict or geopolitical tensions. “Historical patterns indicate that Indian equity markets tend to be resilient during conflicts,” he said. “You can look at the Kargil war, for example, where the Nifty rose 37% during its duration from May to July 1999, despite the tensions and volatility.”

A veteran fund manager cautions that the market sentiment may not be as straightforward. “It is likely to be a slow burn over a long period of time across the entire border,” said **Palviya**. “It is a long grind, not a sudden or dramatic event.”

FPIs’ buying spree has also been accompanied by a net purchase of secondary shares worth ₹27,648 crore. This has reduced the selling intensity from ₹34305 crore in the first half of April to just ₹6657 crore in the month through 24 April. In terms of the second half of April, **Palviya** attributes the recent FPI buying activity to hopes of a trade deal between India and the US, rather than concerns over a retaliatory strike. “FPIs are optimistic about a bilateral trade agreement between us and the US, and this optimism is driving their buying activity,” he said. The unwinding of FPIs’ long put positions has been accompanied by a net purchase of secondary shares worth ₹2952 crore on Friday. The data from the BSE suggests that this trend is expected to continue, with FPIs net purchasing shares worth ₹2952 crore. **FPIs’ Market Sentiment**

“The current market sentiment is a perfect example of how FPIs navigate uncertainty with an informed view,” said **Nirmal Jain**. “They are not taking the risk of major market downturn due to the ongoing tensions, but rather taking a more cautious approach, and thus focusing on the long-term benefits of investing in Indian markets.”

**Market Expectations**

In terms of market expectations, option traders expect the Nifty to receive support at 23840 and 23446 next week, with resistances pegged at 24500 and 25000. In a recent interview, **Palviya** outlined that the Nifty is currently a trading range-based market, and its movements will depend on the level of investor sentiment and the market’s ability to overcome or resist resistance levels. He emphasized that the overall trend will depend on the market’s ability to absorb and process the current uncertainty, and make sense of the unfolding global events. Overall, the market behavior of FPIs is a testament to their understanding of the complexities of the market and their ability to adapt to changing circumstances. By unwinding their bearish positions and purchasing stocks, FPIs are hedging against potential short-term market volatility while focusing on the long-term benefits of investing in Indian markets. As they navigate the global uncertainty, FPIs are demonstrating a cautious and informed approach, which will help them to maximize returns and minimize risks.