FPIs are limiting bearish bets but in no rush to buy yet

Mumbai: Overseas fund managers have cut their bearish derivatives bets on India last month from January lows, encouraged by signs of waning pessimism over the market outlook. But the ease of risk-off sentiment isn’t compelling enough to go completely bullish, with these investors still retaining a larger portion of their bearish bets, especially as uncertainty over AI trading on Wall Street keeps the market on edge. The Long-Short Ratio – the number of traders betting on a rise in prices (long positions) versus those betting on a fall (short) – of the Nifty futures position of foreign portfolio investors stood at 19.4% on Friday, up from 7.5% exactly a month ago. Although the benchmark fell from 22.1% on Wednesday after selling off in the wake of renewed AI-related concerns, showing that foreigners have increased their bearish positions again, analysts have not concluded anything yet. The ratio hit a lifetime low of 5.98% on September 30.

“FIIs have been on a rollercoaster lately,” said Vipin Kumar, AVP derivatives and technical research at Globe Capital Market.

Kumar said that after a brief period of optimism fueled by the India-US trade statement, the Long-Short Ratio of FPIs’ Nifty positions is once again retreating, fueled by a sharp sell-off in US technology, driven by growing concerns over AI disruption.

“The recent dip in the FII Long-Short Ratio suggests that the ‘smart money’ is hedging its bets.”

Following the announcement of the US-India trade deal framework earlier this month, bullish bets rose to 16-17% of total bets from just 11% a day ago.

However, the IT sell-off on Thursday and Friday soured sentiment. The Nifty ended 1.3% lower at 25,471 on Friday, while the Nifty IT index fell 8.2% over the past week. Akshay Bhagwat, SVP derivatives research at JM Financial Services, said foreign investors have been hedging their short bets since Budget Day and also buying index futures, amounting to around Rs 9,400 crore so far.

“However, Nifty has lost its momentum of late and the Long-Short Ratio has cooled down, back below 20% on profit booking on long bets,” he said.

NO BIG MOVES
After Friday’s decline, Nifty is expected to remain above the 24,850-25,000 zone, said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services. “While the market has struggled to maintain momentum, it continues to form a higher base despite the STT hike, a weaker rupee and geopolitical tensions,” he said. Taparia expects Nifty to fluctuate between Budget day low of 24,500 and high of 26,300 post US-India trade deal.

Kumar said the cooling in the Long-Short Ratio indicates that any immediate benefit to domestic markets remains limited as global headwinds outweigh local catalysts. “The near-term technical structure for the Nifty has turned negative. After the recent weakness, the index seems to be moving towards a price differential created during the February 3 rally and the key support zone is around 25,200-25,000 spot levels,” he said.