Last week’s stock market rally failed to convince foreign institutional investors (FIIs) as they continued to ramp up their bearish positioning in index derivatives, with long positions in index futures slipping below 20 per cent and fresh call shorts.

“While both futures and options (F&O) data indicate a rise in the indices and FII shorts have declined, there is still a significant overhang,” Puneet Singhania, director at Master Trust Group said. “FIIs’ sector-specific shorting in stock futures and hedging in options indicate limited upside without stronger institutional commitment.”

The equity market saw a strong up move last week after the Reserve Bank of India announced a 50 basis-point interest rate cut and infused further liquidity by reducing the cash reserve ratio by 100 basis points. This propelled benchmark indices to soar close to their October highs, with the Nifty 50 rising over its crucial 25,000 points mark.

“The proportion of longs among total index futures positions was just 22 per cent last Friday, even when Nifty 50 broke above multi week consolidation pattern and Bank Nifty rose to new record peaks. This is far below the 30-50 per cent seen during May, when Nifty 50 had come to similar levels, suggesting that FIIs were less optimistic on continuation of uptrend,” Anand James, chief market strategist at Geojit Financial Services said.

FIIs’ index call shorts as well as put longs also saw increase in the last week, which is a bearish positioning, partly prompted by how Nifty 50 turned from similar levels during May, James said.

“A decisive move above previous week’s highs could prompt short covering. Until then, FIIs appear positioned for more dips,” he said.

Bearish bets

The fall in the past two days has turned FIIs into net sellers amid growing geopolitical tensions with 12,929 contracts in index futures on Thursday as compared to 6,475 long contracts the day before. The long-short ratio dropped to 19.56 per cent longs versus 80.44 per cent shorts, from 22:78 a day earlier. FIIs sold index futures worth ₹3,831.42 crore that day.

“Although the FII long-short ratio has improved slightly, it still reflects a bearish bias, with only about 20 per cent of FII positions on the long side in index futures,” Rupak De, senior technical analyst at LKP Securities said.

“On the flip side, the high level of short positions suggests that any significant unwinding from here could trigger a sharp rally in the market,” he said.

In the past two sessions, the Nifty 50 index has slipped sharply from the recent high of 25,200 points but managed to find support around 24,473 points. Decent put writing at the 24,600 and 24,700 strikes indicates potential support in this zone. However, significant call additions have also been observed at the 24,700 strike, suggesting a key battleground, said Rupak De.

A decisive move above 24,700 points could force call writers to cover their positions, possibly triggering a short-term rally. On the higher side, substantial call writing at the 25,000 level suggests a strong resistance in the near term.

Published on June 13, 2025