FII holdings of bearish bets on indices spike

Analysts say that the positions are primarily hedges against a steep fall in local stocks.
Analysts say that the positions are primarily hedges against a steep fall in local stocks.


  • FIIs held cumulative index net short positions of 127,429 contracts on Monday, the third highest number since just before the pandemic.

MUMBAI : Foreign institutional investors (FIIs) currently hold the third-highest cumulative quantity of bearish futures contracts on the Nifty and the Bank Nifty since the pandemic began in March 2020. Analysts said that the positions are primarily hedges against a steep fall in local stocks.

Corrections in the market, along with a weakening currency, reduce the profits of foreign portfolio investors when they repatriate funds back to their countries

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Volatile trand

FIIs held cumulative index net short positions of 127,429 contracts on Monday. This was the third highest number after 173,133 net shorts on 6 March 2020, when fears of the pandemic began gripping the world.

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The Nifty, which closed at 10,989 that day, plunged to a multi-year low of 7,511.10 on 24 March 2020, when the first global lockdowns began.

FIIs again raised shorts to the second-highest position of 146,604 on 16 June, a day before the Nifty made a 52-week low of 15,183.4.

From there, the market gradually bounced back to 18,096 in mid-September.

Given the weak FII data, analysts expect choppiness to rise, with the markets likely to test lows of 16,500-16,300.

“These (Monday positions) are mainly hedges against a likely fall in the value of cash shares held and signify excessive pessimism," said Rohit Srivastava, founder IndiaCharts. “The Nifty could correct through 16,500 before retracing 50% of the fall from the mid-September high (18,096) through 16,500."

A 50% retracement from 16,500 implies that the Nifty could bounce to 17,300.

Rajesh Palviya, technical head of Axis Securities, pegs the market range for October at 16,400-17,600, with risks tilted to the downside.

But Siddarth Bhamre, research head of Religare Broking, expects robust domestic demand and falling oil prices to support the bullish sentiment.

“On expiry, FIIs held almost 87% shorts on futures, with only 13% long," said Bhamre. “For one, as these are near-historic high bearish positions, the room to create fresh shorts is limited. Secondly, and more importantly, the present move in the market over the past year is more of consolidation within a 15,000-18,000 range rather than a downtrend.

“It comes against the backdrop of India remaining an outlier in terms of economic growth and strong domestic demand, as reflected by robust GST collections and falling oil prices. I am positive on Indian equities, though global markets are in a tight spot, given the war in Europe and rate hikes in the US which threaten these economies with a recession next year," Bhamre added.

In the first half of the current fiscal (April-September FY23), FIIs have net sold $7.69 billion of Indian shares, becoming net sellers of $900 million in September after buying $7 billion in July-August. With the rupee plunging over 3% from August end to a lifetime low of 81.95 around September end, FIIs have turned cautious, net selling not only in the cash market but also massively shorting index futures to hedge their cash portfolios.

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