Foreign investors appeared to have positioned themselves strategically for the election outcome, making significant adjustments to their portfolio in anticipation of potential market shifts. However, they found themselves surprised by the results of the exit polls, which contradicted their expectations.
In previous elections, foreign investors had accurately predicted outcomes and positioned themselves accordingly, reaping substantial benefits. Yet, this time, their approach faltered.
Initially, foreign investors balanced their portfolio with one-third long and two-thirds short positions in early May. However, as the month progressed, they gradually increased their bullish bets, aiming for a near-neutral stance by late May. Yet, just before the exit polls, they drastically altered their positions, reducing longs and increasing shorts, resulting in an unprecedented shift in stance.
Unfortunately, this adjustment left them on the wrong side of the market when the exit poll results were announced, causing a 3% market surge. Consequently, their net position reflected significant losses.
Following the market turbulence, foreign investors continued to adjust their positions, albeit with caution. Their actions indicated a lingering bearish sentiment, with substantial shorts likely to take time to unwind.
On the other hand, Indian retail traders maintained a consistently bullish stance, with their net long positions fluctuating but remaining predominantly positive throughout the period.
Domestic institutions and proprietary traders also demonstrated varying behaviors. While the former primarily hedged their positions, the latter alternated between short and long positions, ultimately turning bullish just before the exit polls.
In the cash market, foreign institutions exhibited mixed behavior, with sporadic buying and selling reflecting their uncertainty regarding market direction.
Overall, the market witnessed significant fluctuations as different investor groups responded differently to the evolving political landscape, emphasizing the complexity and unpredictability of financial markets during such events.