India’s stock markets are reeling under the weight of huge net short positions in the index futures segment that is dominated by just two indices — Nifty and Bank Nifty.

Foreign portfolio investors (FIPs) hold net shorts of nearly 1,20,000 contracts in the index futures segment alone, according to data from stock exchanges. This, along with relentless selling in the cash segment, has put the stock markets on a crash course.

Five-year lows

On Monday, the Sensex fell by another 8 per cent or 2,713 points to close at 31,390. The Nifty crashed by 7.6 per cent or 756 points at 9,199. Both the indices, which recorded their second worst fall in a trading day, are now near their five-year closing low levels. Gold futures prices, which touched a life-time high of ₹44,961 this year, fell to a low of ₹38,546 on Monday. Silver futures prices crashed by nearly ₹7,000 to a low of ₹33,756.


FPI net short positions in equity index futures hit 173,000 contracts last week. The investors sold stocks worth ₹30,334 crore in the cash segment as on March 13, data shows. The short positions are now estimated to be in the $3-5 billion range.

According to experts, domestic institutional investors, especially Life Insurance Corporation, is absorbing selling pressure from FPIs up to some extent. But there is no incremental buying in the broader markets to reverse the current sentiment. On Monday alone, FPIs sold stocks worth ₹3,809 crore.

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Prior to this, foreign investors were net buyers for six consecutive months since September 2019.

FPIs go berserk

“FPIs operating traded funds, not only ransacked global markets with short-selling but also let loose their hammer of short-selling in India, which has gone unchecked so far. This year, FPIs have sold stocks worth ₹26,406 crore. But their speculative volume in derivatives has been a whopping ₹26.32 lakh crore. Short-selling is destroying markets,” said Deven Choksey, MD, KRC Investment Advisors.

On Monday, trading in US index futures was halt for the third time in the last six trading days. This was enough for fund managers to press the panic button, according to brokers. The Dow Jones Industrial Average was last traded with almost 2,000 points down.