Bullish bets by domestic institutional investors (DIIs) on India’s stock market touched a three-year high this week. Data showed that DIIs were holding net long positions in the index futures segment, comprising mainly the benchmark Nifty and the Bank Nifty index to the tune of 79,050 contracts on March 28, the highest since March 2020. The all-time-high DII long position in index futures was seen in September 2019 around the time when Nirmala Sitharaman announced a cut in corporate tax rates followed by a major market rally. 

In comparison to the bullish bets, foreign portfolio investors (FPIs) held 156,000 contracts of net short positions in the index futures. This indicated that FPIs were still bearish on India’s market, which is also reflected in their daily selling in the cash segment. 

“The positioning of both DII and FPIs in line with the current market sentiments, which is at its nadir, suggests that indices are ripe for a sharp rally. Major bad news has been discounted on the domestic as well as the global front since the feared banking crisis seems to be no more bothering the global markets too. Most importantly, the US Federal Reserve is almost near the end of its rate hike cycle. These are signs of a reversal,” said Rohit Srivastava, strategist, Indiacharts. 

According to Srivastava, DII long positions even in light of market decline show their confidence on the possible recovery from oversold levels. “Nifty support near 16,830 has ended up being protected because of this buying. On the other hand, FIIs that held a record number of short contracts on index futures last week, have started to reduce their shorts in the last few days,” said Srivastava. 

FPI short positions had reached an all-time record of 196,000 contracts in March from where it fell to 138,719 contracts as on Wednesday, indicating unwinding of bearish bets. DII long positions too fell to 70,190 as on March 29.