The long-short ratio of foreign portfolio investors (or FPIs’) Nifty futures bets fell to 35.4% on Friday, from about 56% a week ago. The long-short ratio in index futures is a measure of the number of bullish positions versus bearish. A low reading means foreign investors are bearish. The reading was 12.4% on February 28, 2020, when concerns over the spread of Covid had erupted.
The build-up of bearish bets coincided with FPIs pulling ₹18,601 crore out of Indian equities last week. So far in April, these investors have been net sellers in Indian shares to the tune of ₹5,254 crore.
“We have seen aggressive build-up of short positions by FPIs in Nifty futures in the past week,” said Ruchit Jain, lead research analyst at 5Paisa.com. “FPIs have been selling and unwinding their long positions after the escalation of Iran-Israel conflict,”
Nifty futures have seen a total net short position of about one lakh units, which is often seen when the market is in a corrective phase, said Jain.
Last week, Indian benchmarks fell 2.1-2.5% on concerns over the clash between Iran and Israel. Though the Sensex and Nifty rebounded on Friday after four straight days of losses on expectations that the conflict in West Asia would recede soon, the undertone is cautious. FPIs’ Nifty futures long-short ratio on Friday rose from the previous day on liquidation of some bearish bets, helping the market to bounce back.“Market participants are displaying caution as the coming week is going to be results-heavy with many large-caps announcing their numbers,” said Sudeep Shah, head of technical & derivatives research at SBICAP Securities. “Given the tensions between Iran and Israel, traders are a bit apprehensive about taking leveraged positions.”Analysts said the recent selloff in the US markets, especially in the technology giants, is also keeping investors on the edge. On Friday, the Nasdaq tumbled over 2%, extending losses for the sixth straight day on growing fears that the US Federal Reserve may not be able to cut interest rates as anticipated earlier in the face of sticky inflation.
In India, the IT sector, whose prospects are closely linked to the health of the US economy and monetary policy, has the highest build-up of short positions in equity derivatives.
“Sectorally, IT has seen a lot of aggressive buildup in short positions since before Infosys results where there is no sign of short covering yet,” said Jain.
“The trigger for short covering could be stronger results (by rest of the IT companies) or positive cues from Nasdaq.”