Foreign portfolio investors (FPIs) had $1.8 billion in outstanding short positions on the Nifty futures index this week — the highest since March 6, 2020. In March 2020, the Nifty was amid the breakout of the Covid-19 pandemic down 23 percent.
Not only have FPIs built aggressive short positives in index futures, they have also liquidated their long positions in single-stock futures, analysis by Nuvama Institutional Equities shows. Experts see this as positioning the FPIs to benefit from a fall in the market. However, if sentiment takes a positive turn, they will be forced to cover their short positions, causing the market to bounce.
“If history is to repeat itself, Nifty can easily fall 1,000 points and the back bet will be a sharp recovery rally as FPIs are excessively short the index and have almost no position in single stock futures. But a strong rebound is unlikely in the short-term,” said Abhilash Pagaria, Head of Alternative & Quantitative Research, Nuvama Institutional Equities, in a statement.
Comments are closed.