FPI: FPIs’ addition of shorts in index futures could check Nifty’s upside

The long-short ratio in index futures – a measure of market sentiment – of overseas investor positions has plunged to a two-month low of 19%, which could make the ride challenging in the coming week, said analysts.

The long-short ratio plunged from 76% on Tuesday to 37% on Thursday and 19% on Friday, showing that FPIs suddenly turned bearish on the Indian market with 81% short position.

“Short build-up by FPIs in the index and stock future’s segments, a fall in their net long to the short ratio in the index futures and call writing at 17,700 – 17,800 levels imply the Nifty may remain sideways and trade in a range of 17,300 to 17,700 levels in the coming days,” said Siddharth Deshpande, analyst,

Securities. “Therefore, our advice is to create long positions on the decline with a stop loss of 17,200 and on the rise create short positions near 17,700 with a stop loss at 17,800.”

Nifty current month’s futures closed with a premium of 23.3 on Friday against a premium of 118.1 points to its spot in the previous week. Next month’s future is trading at a premium of 78.65 points.

“FIIs long-short ratio is falling from higher zones along with higher volatility which is making the ride tough,” said Chandan

, technical analyst, . “So, the major outlook remains bearish, the negativity in the ratio might point to an oversold scenario.” The put-call ratio has increased from 0.88 to 1.04. The annualized cost of carry is positive at 1.73%. The open interest in Nifty Futures increased by 21.77%
After being consistent sellers of Indian equities for nine months, due to rising interest rates, inflation, higher volatility, and rising crude prices, FPIs have turned net buyers in July. They bought shares worth ₹6,720 crore in July and ₹54,000 crore in August, expecting the Indian economy and markets to outperform the US and other markets. However, on September 1 and 2, they sold shares worth ₹2,300 crore.

On the fundamental front, India is better placed for FPIs among the emerging markets, said analysts.

“On a relative basis, India looks better placed with a healthy economic recovery, however, higher energy prices have negative implications, and the Indian economy does remain vulnerable from that perspective with respect to inflation, current account deficit, corporate profitability, and currency,” said Arun Agarwal, analyst, Kotak Securities.

“Further, there are risks from a slowdown in global demand.”