News

Published: October 30, 2023
Updated: October 30, 2023

FPI Positions Signal Ongoing Market Struggles

Positioning by Foreign Portfolio Investors (FPIs) Raises Concerns

Amid the backdrop of a recent bounce following six days of relentless selling that wiped out a significant ₹14 trillion in investor wealth, market watchers are taking note of the foreign portfolio investors' (FPIs) recent activity. Their positioning in the market is raising concerns and is perceived as a sign of further market weakness.

Market Downturn

The benchmark Nifty index has experienced a 4.8% decline, falling from 19,811.5 on October 17 to 18,857.25 on October 26. These declines have been driven by mounting fears over the widening Israel-Hamas conflict and US bond yields reaching 16-year highs. While there was a brief relief rally on October 27 that saw a 1% increase driven by short covering, FPIs simultaneously engaged in cash selling and bolstered bearish derivatives positions in Nifty and Bank Nifty futures contracts.

FPI Activity

On the most recent Friday, FPIs engaged in cash sales worth a provisional ₹1,500 crore. Simultaneously, the cumulative net shorts in index futures contracts increased from 152,060 contracts to 152,790 contracts in a single day. This shift in their index long short ratio, dropping to just 12.3% from a notable 66% on September 15 when the Nifty reached a lifetime high of 20,222.45, has the market on edge. This drop indicates a rise in bearish sentiment among FPIs.

Cautious Stance

Market observers are taking note of FPIs' decidedly cautious stance. This shift in their positions is seen as a significant development, given the prevailing global uncertainties. The West Asia tensions and rising global interest rates create room for a deeper market correction.

Series Beginning with Uncertainty

Notably, this fresh November series of derivatives began with high FPI positions, an occurrence that isn't common. This suggests that uncertainty is prompting FPIs to hedge their positions. The series dynamics are crucial and reflect whether bearish or bullish bets are carried forward or rolled over to the next series.

Ongoing Bearish Sentiment

The rollover of Nifty futures at the end of the October series indicated that bearish bets had been rolled over. With the November series starting with a higher Open Interest (OI) base, short build-up is evident. The FPIs' cautious stance continues to resonate in the market, casting uncertainty over the near-term outlook.

The FPIs' position in the market is an integral indicator of market sentiment. As they adopt a cautious approach, the markets face challenges tied to global dynamics and uncertainties. The path forward is uncertain, and investors are closely monitoring developments as the market navigates this challenging landscape.