There could be some good news for investors. Foreign portfolio investors (FPIs) have aggressively shorted the index futures and their position has gone over 90% — an indication that the market is in an oversold territory, and could lead to a bounce back.
The last time this happened was in March 2023. After that, both Nifty and Sensex rallied more than 5% in one month from March 29, 2023 to April 28, 2023. And the three-month returns of the benchmarks from March 29 were nearly 10%.
Since July 31, FPIs’ short positions have remained above 90%, according to data from Bloomberg. On Monday, both Nifty and Sensex ended around 1% higher as various macro developments boosted the sentiment including GST reform proposals, easing concerns over crude oil prices, and a sovereign rating upgrade. FPIs were net buyers of Rs 550 crore.
Analysts see relief rally ahead
Osho Krishan, chief manager of technical and derivatives research at Angel One said, the developments over the weekend could be seen as a revival for Indian equities and now there is a higher probability of a relief rally but the tariff concerns are still looming.
“In the short-term, some kind of relief can be expected,” he said. According to him, FPIs having nearly 30% of long positions can be considered as fair valuation. Till the last trading session (August 14) it was 8% so there is a huge possibility of a revival in markets, he said.
Agreed Brijesh Ail, head of technical and derivatives at IDBI Capital that while the position shows that there is more likely to be a bounce, it could be more of a trading bounce as well.
Global factors weigh on sentiment
So far in August, FPIs are net sellers of Rs 16197.49 crore. VK Vijayakumar, Chief Investment Strategist, at Geojit Investments said, Trump’s harsh tariffs and the straining of relations between US and India have impacted the market sentiments and, consequently, shorts have piled up pulling the market down. “The tepid earnings growth, elevated valuations and modest projection of 8 to 10% earnings growth for FY26 have emboldened the bears to increase short positions,” he said.
A recent BofA Securities’ latest Asia Fund Manager Survey showed that India is now the least-preferred market, as compared to being the most-preferred one three months back in May. On Thursday, however, Nifty closed the week higher at 24,631 points after six weeks of fall.
Technical analysts said that A sustained close above 24,800 will trigger short covering and this can take the index back to 25,200- 25,300 levels. The Nifty futures contract expiring on August 28 is at 24,966.80 points, that expiring September 30 is at 25,115.60 and October 28 is at 25,160.70.