Foreign portfolio investors (FPIs) had outstanding short positions worth $1.8 billion on the Nifty futures index this week — the highest since March 6, 2020. In March 2020, the Nifty had declined 23 per cent amid the outbreak of the Covid-19 pandemic.
FPIs have not just built aggressive short positives on the index futures, they have also unwound their long positions in the single stock futures, shows an analysis by Nuvama Institutional Equities. Experts see it as FPIs positioning themselves to benefit from a fall in the market. However, if sentiment takes a positive turn, they will be forced to cover their short positions, leading to a jump in the market.
“If history is to repeat itself, then Nifty can easily decline by 1,000 points and the contra bet will be a sharp rebound rally as FPIs are excessive shorts in index and hold almost no position in single stock futures. But a sharp rebound looks unlikely on a very immediate basis,” said Abhilash Pagaria, head alternative & quantitative research, Nuvama Institutional Equities in a note.
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