India’s stock market traders are likely to have been caught on the wrong foot. At a time when major equity indices in the US are going down like ninepins, most Indian traders, including retail and high net-worth individuals (HNIs), are currently holding highest net long positions in the futures contracts of the Nifty index, in nearly two years.

It simply means that a large number of retail and HNI traders in the derivative segment are highly vulnerable to the market shock in the coming weeks, experts said.

Position in Nifty futures

Nifty is India’s monopolyderivativesindex, which is used for betting on future prices. Data from Indiacharts research show that the net long position of domestic traders in the Nifty futures as on June 10 stood at 1.23 lakh contracts (was 1.32 lakh contracts on June 9) and is the highest since March 2020 Covid lockdown. On March 6, 2020, domestic traders held net long Nifty futures to the tune of 1.44 lakh contracts.

Currently, foreign portfolio investors are holding short positions in the Nifty futures to the tune of hundred thousand contacts.

Holding long positions means taking a bullish bet and the short positions is contrary to that. Each Nifty lot is valued at more than ₹7.5 lakh. As per QuantsApp data, the total Nifty futures open interest as on June 10 stood at 1.32 lakh contracts.

According to Indiacharts, FPIs stand tobenefitif the markets fall while domestic investorswill be the worst hit.There is a view that those holding net long positions in the Nifty index may not be able to escape without heavylosses sincethe global markets are already in a downward trend.In the US, major indices including the Dow Jones, S&P and the Nasdaq fell between 3 per cent and 6 per cent in just two trading sessions last week.

“We are in different times from that of Covid and holding long positions currently may not be rewarding.In March 2020, those who kept holding long positions in Nifty futures for the following months, gainedimmenselysince market regulator SEBI banned short selling. It led to a sharp market reversal and recovery. Currently, there seems no case for SEBI to ban short-selling. In addition, global central banks have started unwinding the stimulus aggressively unlike during Covid when they were extending it. So market liquidity will soon run dry while inflation is already causing havoc. All this is arecipefor a further meltdown, and holding long positions now is like a death wish,” said Rohit Srivastava, chief strategist, Indiacharts.

Rupee at new low

Srivastava believes that the market decline could continue at least for June and July since the US Federal Reserve would be announcing two interest rate hikes of 50 basis points each and if inflation is still not curtailed another hike in August too. In nearly nine months, ever since the news of Russia increasing its deployment of troops along the Ukraine border surfaced, the FPIs have sold stocks and index futures worth more than $25 billion in the secondary markets. On June 10, the rupee hit a life-time low of 77.82 against the US dollar indicating immense pressure in the markets.