FPI Nifty Shorts: Why Foreign Investors are Betting Against India’s Benchmark Index
Foreign investors have been net sellers in Nifty Futures, with their open interest position reaching its highest level since January 28 this year. In the July series, FPIs have sold Nifty Futures worth Rs 12,302.57 crore, taking their total open interest position to Rs 28,865 crore.
This is a stark contrast to the Nifty 50’s performance, which has delivered a 9.37% return since January 28. The index has seen active call writing at the 25,000 and 25,100 levels, with puts showing strong support at 24,900 and calls indicating strong resistance at 25,100.
What’s Behind FPIs’ Bearish Stance?
FPIs’ short positions account for 85% of their total open interest held by them as of Friday’s close. This aggressive shorting could be attributed to the disappointing first-quarter earnings season and uncertainty over ongoing US-India tariff negotiations.
India’s negotiation team has returned from the US, but discussions are ongoing. It remains uncertain whether an interim trade deal on goods will be announced by August 1. India has so far maintained its red lines on market access and tariffs for the agriculture and dairy sectors. A graded tariff on some contentious items is likely, but this depends on President Trump’s approval.
Impact on Investor Sentiment
The increase in short positions comes amid a disappointing first-quarter earnings season, with a tepid outlook for technology stocks and private banks. Many private banks have reported compression in net interest margins and deterioration in asset quality, while deposit growth has remained marginal and credit offtake has been slow.
Domestic institutions have, however, stepped in to offset FPIs’ selling, purchasing Rs 21,893 crore in July alone. The Nifty 50 has declined 4.64% so far this month.
Nifty Bank: A Different Story
FPIs have slowed their addition of short positions in Nifty Bank Futures, with their open interest standing at Rs 7,274 crore. This is much lower than during the fourth quarter and the April earnings season, when it peaked at over Rs 12,000 crore.
The slow down is also attributed to tighter delta position limits and regulatory scrutiny over FPIs’ option trading activities, which has led to manipulation allegations against Wall Street’s largest high-frequency trader, Jane Street. Jane Street has submitted its impounded amount and is awaiting Sebi’s removal of restrictions against trading.
Conclusion
In conclusion, FPIs’ aggressive shorting of Nifty 50 and Nifty Bank Futures could be a cause for concern for investors. However, domestic institutions have shown resilience, and the markets are expected to remain volatile in the coming weeks. As always, it is essential to stay informed and adapt your investment strategy accordingly.
