Amidst the US banking crisis, bearish bets by foreign portfolio investors (FPIs) have reached an all time high in India. Data show that FPIs held net short positions to the tune of 4,56,641 contracts in the F&O segment combined as on Tuesday, the largest such short position on record.

Peak short positions of FPIs have often been a lead indicator of market reversals, analysts said.

Such a high reading of net short positions was last seen on October 3, 2022, when the Nifty was trading at around 16,800 and the shorts in F&O combined were 3,75,447 contracts. Data for Wednesday was still awaited from the exchanges but market internals suggested that short positions would only be higher than on Tuesday, experts said. FPI net index futures short position is at a nine-month high at 1,44,626 contracts.

The Sensex and Nifty touched an eight-month low on Wednesday. “FPIs have been adding to short positions since January and there are signs since February that the positions were reaching a peak. On Tuesday, the short positions exceeded the previous record. Such built-up consecutive three months were not seen since the 2017 demonetisation time. There could be a strong short covering rally in the coming weeks as record inflows into Indian mutual funds would force FPIs to unwind their positions,” said Rohit Srivastava, Strategist, Indiacharts.

Fed watch

The banking rout that started in the US has now spread to Europe with Credit Suisse AG witnessing a 24 per cent decline on Wednesday and trading in some Italian banks being halted due to the fall. All the major European markets were trading lower by more than 2 per cent while the US indices started with cuts of over 1.5 per cent.

“There is excessive fatigue in the markets from the continuous news cycle. All eyes will be on next week’s Federal Reserve’s interest rate meet. Most likely the Fed will still raise rates by 25 bps as the inflation in the US was still around 6 per cent. But the banking crisis has definitely dent the chances of aggressive rate hikes this year, which could be positive for markets,” said Rahul Arora, CEO — Institutional Equities, Nirmal Bang.