FPIs unwinding of bullish bets spurs decline in stocks
1 min read 16 Dec 2022, 11:49 PM ISTForeign portfolio investors are swiftly unwinding momentum trades that catapulted the Nifty to a record 18,887.6 earlier this month, driving down stocks
PremiumForeign portfolio investors (FPIs) are swiftly unwinding their momentum trades that catapulted the Nifty to a record 18,887.6 points earlier this month, driving down stocks for a second straight session.
The Nifty slipped 618.6 points or 3.3% from its 1 December record to 18,269 points on 16 December, as FPIs reversed their net cumulative bullish index futures contracts on Nifty and Bank Nifty from a three-year, seven-month high of 102,664 contracts to just 12,595 contracts on 15 December.
Data for Friday was yet to be released at the time of writing.
Analysts said the reversing of these long bets precipitated the market fall, especially over the past two sessions, when Nifty slipped 391 points or over 2% to Friday’s close.
Analysts expect the likely creation of short bets on Nifty and Bank Nifty futures to break the psychologically important mark of 18,000 points and head lower.
“FPIs will in all likelihood turn bearish on index futures, and this could take the market down to its 20-week moving average of 17,816," said Rohit Srivastava, founder of analytics firm IndiaCharts.
Levels around 17,700-17,800 are expected to be strong supports, according to Shrikant Chouhan, research head (retail) Kotak Securities, as domestic institutions could step in at these levels.
Foreign investors have net sold $1.98 billion worth of shares till 15 December this fiscal year, after selling $18.46 billion in the previous year.
These investors reducing their cumulative bullish bets on index futures adds to the negative sentiment due to the comments from US Federal Reserve chairman Jerome Powell that turned out to be more hawkish than expected.
On 14 December, the US Fed raised the federal funds rate by 50 basis points to 4.25-4.50%.
After Powell’s comments, markets are pricing in a longer period of higher interest rates amid an anticipated recession next year.
A futures contract allows a buyer or seller to buy or sell underlying assets at a fixed price on a future date.
FPIs use Nifty and Bank Nifty futures to hedge their portfolios or to simply bet on the indices.
