Home minister Amit Shah may have been able to talk up the stock market’s bellwether indices by asking investors to go out and scoop up stocks now and make big gains on their investment after June 4 when the election results come out — but foreign investors remain deeply sceptical and suspicious about the motivations behind his gratuitous advice.

There is evidence that foreign portfolio investors (FPIs) have already started to hedge their bets by loading up on put options to sandbag their equity portfolio against a sudden slide in benchmark indices.

Vineet Arora, managing director at Dubai-based investment firm NAV Capital, told Reuters that foreign investors are worried about the election outcome and will buy puts of the Nifty 50 or the Bank Nifty.

That is a view supported by data. The net open interest of put options on domestic indices held by overseas investors hit the highest since at least January 2019, data compiled by Reuters showed.

A put option, which indicates a bearish view of a market participant, is a contract that gives an investor the right, but not the obligation, to sell the underlying asset at a set price through a specified expiration date.

The foreign investors have been clawing back money from their investments in India for a variety of reasons including the US Federal Reserve’s decision to delay interest rate cuts and the dimming lustre of Indian equities which seem overvalued after an over 20 per cent surge in the Nifty 50 over the past year.

Provisional data showed that the foreign portfolio investors (FPIs) have offloaded stocks worth ₹4,406 crore on Tuesday when the benchmark Sensex racked up gains of more than 328 points. In the first fortnight of May, these overseas investors have net sold shares worth ₹22,767 crore (as per NSDL data) which is 2.62 times more than the ₹8,671 crore they offloaded in the preceding month.

These investors were net buyers in only February and March — when fund inflows topped outflows by ₹36,637 crore — after withdrawing ₹25,744 crore in January.

They have also been net sellers in debt securities since April. However, on a year-to-date basis, the FPIs have funnelled nearly ₹43,000 crore into bonds.

Experts remain divided on the reasons behind the overseas investors’ withdrawal from the domestic markets. An analyst with a domestic brokerage said election-related jitters on top of rich valuations were the main reasons for their exodus.

The stock markets have been on edge after the low voter turnout after three phases of polling , exacerbating worries that the Narendra Modi-led NDA may not achieve a landslide victory — a prospect that the market was fairly certain about before the seven-phase voting process began.

These investors have now started to book profits at every opportunity and will time their re-entry into the Indian markets after the poll results.

One view is that the Modi government may have precipitated the situation with the recent change in the tax treaty with Mauritius that now incorporates a litmus test – called a Principal Purpose Test to justify a commercial reason for incorporating an entity in the island nation – to determine eligibility for the tax breaks.

Not everyone agrees with the view that investors have gone into a funk over the election outcome.

V.K. Vijayakumar, chief investment strategist at Geojit Financial Services, says that the burst of selling by the FPIs has nothing to do with the polls. He reckons that these foreign investors have started to wind down on the China Plus One strategy that prompted fund managers to scout for other destinations in Asia when Beijing’s economy started to stutter in 2022 as a result of tough Covid restrictions.

Vijayakumar said the fund managers are changing their stance from ‘sell China, buy India’ to ‘sell India, buy China’.

“This change in stance has been caused by the outperformance of China (Shanghai Composite up 3.96 per cent and Hang Seng up 10.93 per cent last one month) and underperformance of India (Nifty down 2.06 per cent in the last one month). This is likely to be a near-term trend triggered by the cheap valuations of Chinese stocks and the relative high valuations of India,” he added.

Kishor Ostwal, CMD, CNI Research, who also discounts the market’s heebie-jeebies over the poll outcome, says that the FPIs have nearly 73 per cent of their investments locked up in four sectors: FMCG, oil & gas, information technology, and financial services.

One view is that the FPIs no longer have a huge influence in Indian markets. Domestic institutional investors and cash-laden mutual funds have been propping up the markets for quite some time.

That is one reason why the BSE Sensex rose 328.48 points, or 0.45 per cent, to settle at 73104.61 after jumping 510.13 points, to touch a day’s high of 73286.26. The broader Nifty gained 113.80 points, or 0.51 per cent, to close at 22217.85 with 36 of its stocks recording gains.