GIFT Nifty derivative contracts, which are traded on the NSE International Exchange at GIFT City, have registered an unprecedented spike in turnover in the last four trading sessions, which has pushed the monthly turnover to a new record high.

The average daily turnover in the last four sessions is pegged at $11 billion per day, which is a huge jump from the $2.5 billion turnover that was the average turnover for the rest of the month.

Interestingly on May 27, the cumulative GIFT Nifty turnover dropped by nearly 50 percent to $44 billion with market experts attributing the decline to huge selling by foreign investors – mirroring the trend in the domestic market as well where FPIs have been net sellers to the tune of nearly $3 billion in the current month.

More importantly, the late surge has been such that the cumulative monthly turnover has been pushed to a new record high of $88.10 billion – beating the previous record of $82.04 billion registered in April.

A statement from NSE IX highlighted the fact that trading turnover on the exchange has been growing exponentially since the commencement of the full-scale operation of GIFT Nifty on July 3, 2023.

“Since the first day of full-scale operations, GIFT Nifty has witnessed a total cumulative volume of over 18.84 million contracts with a total cumulative turnover of $782.08 billion till the end of the first session on May 30, 2024,” said the NSE IX statement.

Analysts, meanwhile, believe that foreign investors are creating both long and short positions ahead of the poll results scheduled on June 4, with a renewed focus on hedging activity.

The trend in the domestic markets also indicates selective buying and some short positions by FIIs as soon after hitting 23,000 levels, profit booking and consolidation were witnessed.

Analysts add that the exit polls that are scheduled on Saturday are likely to guide market direction over the next couple of trading sessions though the FII community is divided between bullish and bearish stance with no clear trend as of now.

In the domestic markets, the rollover session on 30 May saw FIIs significantly increase net short exposure on index futures, reaching a multi-year high of 2.97 lakh contracts. This surge coincides with an impending major event -- the election outcome – and is likely to impact market volatility, say analysts.

While this sizeable position may cause concern, it could also reflect normal hedging operations, they add highlighting the fact that similar high exposure levels were observed in early May only to be subsequently reduced within 3-4 trading days.

Given the potential for market swings, comprehensive hedges are advisable during pivotal events like these, say analysts.