Did foreign investors and prop traders sniff the US tariff verdict?

Cumulative outstanding positions of FIIs in index calls stood at 23,592 net short contracts on Thursday; by the end of Friday, as the US verdict approached, they had reversed it to 60,555 net long contracts. Meanwhile, props, or brokers who trade for themselves, increased their net call option longs to a whopping 175,073 contracts from a mere 3,199 the previous day.

At the same time, index call options of domestic institutional investors stood at a net long 1,061 contracts, unchanged from the previous day.

Uncertainty rules

However, market veterans are doubtful that a rally, even if it happens, will sustain. In fact, the verdict may have actually increased the uncertainty for America’s trading partners, since President Trump has recourse to other laws to re-impose tariffs. Soon after the verdict, Trump invoked a 1974 trade law to impose a 10% global tariff on imports, and raised it to 15% on Saturday.

“Even though the SC has declared the tariffs to be illegal, the (US) president has other means to impose them under various sections of the trade act, and, though that might take time, it still gives rise to a lot of uncertainty,” said Sanjeev Prasad, managing director & co-head of Kotak Institutional Equities, while ruling out a tearaway rally in the market.

FIIs and proprietary traders take short-term bets on market movements through weekly Nifty options. This is reflected in Nifty options comprising 83% of total index options’ outstanding positions at 3.09 million contracts as of Friday, with Bank Nifty, Nifty Midcap Select and Nifty Financial Service indices accounting for the rest.

NSE data showed that it was retail investors and high networth individuals (HNIs) who sold the contracts to FIIs and props. At the end of Friday, their net shorts in calls stood at 236,689 contracts, flipping from a net long 19,331 contracts the previous day.

A call buyer is bullish on markets, while a call seller is bearish. Most of the positions relate to the upcoming Tuesday expiry of weekly Nifty options.

If the market opens significantly higher on Monday from its Friday close, retail investors and HNIs may be forced to close out some of their shorts, said Rajesh Palviya, research head at Axis Securities.

‘Temporary rally’

Ace investor Shankar Sharma sees little long-term gain from Friday’s court ruling.

“There could be a temporary rally, but I don’t think it would sustain, because from a merchandise trade point of view, we don’t export materially to the US. Besides, there’s no change to the new H-1B visa rules which, if eased, would have mattered more because software services are our chief export, ” Sharma said.

He was referring to H-1B petitions filed after 21 September last year which attract an additional $100,000 fee and act a tariff on importation of labour.

After hitting a record high of 26373.2 on 5 January, the benchmark Nifty has gyrated between a low of 24571.75 and a high of 26341.2. It has, however, struggled to sustain above the 26,000 mark, having closed up half a percent at 25571.21 on Friday. The reason is that FIIs have remained sellers of ₹24,562 crore so far in 2026, after selling shares worth ₹2.4 trillion last year, according to depository data. While domestic investors led by mutual funds absorbed their sales by net-purchasing ₹83,332 crore so far this year and ₹7.9 trillion last year, as per BSE data, the tepid FII sentiment has acted as a spoiler to a secular bull market.