Short positions of foreign portfolio investors (FPIs) are on the decline in the last couple of weeks, indicating a reversal of trend, said industry experts. This is also reflecting in the numbers, with FPIs net inflows at Rs 21, 286 crore in October – a first after three months of outflows.
Data shows that the percentage of FPI short positions as a percentage of total in India’s index futures has been hovering around 80% since October 15. The reversal in trend can be seen in the performance of benchmark indices, which have risen 5.1% in October – the highest in seven months.
Said Saurabh Mukherjea, founder and CIO of Marcellus Investment Managers, “The trend of FPI investments has started to change as there is excitement around GST cuts and Diwali was good for sectors like cars and consumer goods.”
He added that even the valuations have become reasonable from what they were in the past couple of years.
The markets had entered into an oversold territory in July-end, when FPI short positions were hovering at over 90%. The last time FPI short positions were this high was in March 2023. After that, both Nifty and Sensex rallied more than 5% in one month, 10% in three months.
Rohit Srivastava, founder of Indiacharts, noted the number of short contracts has almost halved from the beginning of this month given the anticipation that trade tensions are behind us though he added that one should wait for more clarity.
Bloomberg data shows that in January this year, the open interest of short contracts hit 445,114 – the highest since September 2015. At the end of Thursday’s session, they were at 138,858, down 70%.
In the cash market also, they have been positive for 11 of the 19 sessions in the month of October. On Tuesday, they had invested more than Rs 10,000 crore. Osho Krishan, chief manager of technical and derivatives research at Angel One said this was as heavyweights started to show momentum. According to Srivastava, this is being driven by improvement in emerging market flows.
Krishan added that the rollover from October was quite positive and indicates that positioning is shifting here onwards. He believes that the worst is behind us as bottom has been made but noted blips can be seen. For him, 25,500 and 25,800 are crucial support levels for the Nifty 50 index and a breakout above 26,100 points will attract traction from both FPIs and DIIs.
Srivastava said, “This reversal is a good sign and hints at the sentiment changing from negative to positive,” he said but noted in the past decade, it has been observed that FPIs are sellers in 80% of the year and the inflows come only in spurts and to improve inflows capital gains taxation for FIIs needs to be eased. He advised investors to continue accumulating at these levels.
Krishan said he is expecting a sectoral rotation as sectors like auto have already rallied. He is positive on IT and capital goods.
Meanwhile, Nuvama expects Nifty to be range bound in the November series and sees more compelling opportunity in broader market indices, noting Nifty Next 50 sits approximately 12% below its peak, while Nifty Smallcap remains about 6% off its highs, and Nifty Midcap has already reclaimed all-time high territory.