FPI positions hint at more pain for mkts

The benchmark Nifty index fell 4.8% from 19,811.5 on 17 October to 18,857.25 on 26 October as fears grew over the Israel war widening and US bond yields hitting 16 year highs. A relief rally on 27 October, drove up the indices by 1% on short covering, but FPIs sold cash and added to bearish derivatives bets in Nifty and Bank Nifty futures contracts.

Friday’s cash sales by FPIs were a provisional ₹1,500 crore while cumulative net shorts in index futures rose to 152,790 from 152,060 contracts a day earlier.

Consequently, their index long short ratio slipped to a mere 12.3% from 66% on 15 September when the Nifty hit a lifetime high of 20,222.45.

This means they are just 12.3% cumulatively long on index futures currently, down from 66% only last month. Markets see this as a rise in bearish sentiment .

“FPIs are decidedly cautious and this is something we shouldn’t lose sight of,” said Rohit Srivastava, founder, Strike Money Analytics and IndiaCharts.

Srivastava said the FPI long short ratio of 12% after the 27 October bounce was the lowest since the 9.17% ratio on 22 March at the time markets were near the 52-week low.

“Given the unravelling of the West Asia tensions and rising rates globally, there is room for a deeper correction,” he said. Friday also happened to be the first day of the fresh, November series of derivatives.

Such high positions at the beginning of a series are not commonplace and suggest that uncertainty is making FPIs hedge, according to UR Bhat, founder of Alphaniti Fintech.

Each derivative series runs till the last Thursday of a month. If Thursday’s a holiday, the series expires a day earlier. Market condition at expiry suggests whether shorts or bearish bets, or longs or bullish bets are carried forward or rolled over to next series.

At the expiry of October series on 26 October, the Nifty rollover was higher than the previous series alongside the fall, implying that bearish bets had been rolled over.

“Nifty futures rollovers stood at 83% vs 79% (last three series). Alongside, Nifty futures will start the November series at higher OI base of INR 219bn (~11.6mn shares) vs. OI of INR 204bn (~10.4mn shares) seen at the start of October series and this signifies significant short build-up,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research .

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Updated: 29 Oct 2023, 09:07 PM IST