This week, the bearish bets of foreign portfolio investors (FPIs) in India’s stock markets rose to the highest since June 2022.

Data show, FPI short selling in the index futures, consisting mainly of Nifty and Bank Nifty index, touched 1.31 lakh contracts on Tuesday. In June last year, the FPI short positions had touched 1.46 lakh contracts. The Nifty was trading at 15,200 levels then and rose by 20 per cent to around 18,500.

The above mentioned contracts translate into thousands of crore worth of short positions by FPIs in index futures. Analysts say, markets usually rally on such short built-up of positions since any trigger can force FPIs to cover positions. Short covering is buying contracts sold earlier. If the markets rise, FPIs are forced to cover their positions at higher prices giving a further impetus to the rally.

‘2-16% returns’

“FPIs have added short positions several times in the past year when the markets declined. This is the fourth such occasion where the FPI shorts are above 1,20,000 contracts. In such a scenario, usually the next couple of months of market returns are anywhere from 2 per cent to 16 per cent, based on last year’s trend. With the daily RSI (relative strength index, a momentum indicator used to identify overbought or oversold condition) at 30, the Nifty is oversold currently. If it reverses course, the FPI short covering will be fast. Considering this analogy, the Nifty has fair chances of touching 19,000,” said Rohit Srivastava, Strategist, Indiacharts.

Hindenburg Research’s short selling report on Adani spoiled India’s market sentiments as shares of the Group’s stocks declined 50-70 per cent from their peaks since January 25. This gave FPIs further comfort in going short on Indian markets.

According to data, FPIs sold stocks worth ₹41,464 crore in January, the largest selling since June last year (₹58,000 crore). The selling spree reduced in February with net sell figures in the cash segment coming in at ₹11,090 crore.

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