FPIs’ In­dex Fu­tures Po­si­tions Hint at Room for a Big­ger Cor­rec­tion in Nifty

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The Nifty has sub­stan­tially more room to cor­rect, if for­eign port­fo­lio in­vestors’ (FPIs) cu­mu­la­tive net open in­ter­est (OI) po­si­tions on in­dex fu­tures (mainly Nifty and Bank Nifty) in the year through Jan­uary 14 is any­thing to go by.

Data from March 2018 more suc­cinctly in­di­cate that when­ever cu­mu­la­tive net OI has been around or ex­ceeded mi­nus 1,00,000 in­dex fu­tures con­tracts the Nifty tends to bot­tom out; and when the net OI stands at any­where be­tween 16,000 and 55,000 con­tracts, the in­dex tends to have topped, ac­cord­ing to Sharekhan by BNP Paribas’ FPI net OI data.

As on Jan­uary 14, the net OI fig­ure stands at mi­nus 27,979 con­tracts, in­di­cat­ing that there’s more room for cor­rec­tion, says Ro­hit Sri­vas­tava, tech­ni­cal ex­pert at Sharekhan by BNP Paribas. “The im­pli­ca­tion is that FPIs are cre­at­ing sig­nif­i­cant shorts on the way down


(Nifty cor­rec­tion), but not adding sub­stan­tial longs when the mar­ket ral­lies,” he said. For ex­am­ple, on March 12, 2018, when net po­si­tion was 24,127 con­tracts, the Nifty topped around 10,421 and cor­rected to 9,998 on March 23. On April 4 last year, net FPI po­si­tion was mi­nus 1,34,006 con­tracts at Nifty level of 10,128, which rose to 10,801.84 on May 15. On Oc­to­ber 26, net OI was mi­nus 1,27,331 con­tracts with Nifty bot­tom­ing at 10,030. On De­cem­ber 31, the fig­ure was 16,817 con­tracts (Nifty 10,862.54) and on Jan­uary 14 Nifty mi­nus 27,979 con­tracts (Nifty 10,737.6).

Sev­eral rea­sons are be­ing of­fered by mar­ket watch­ers, like rel­a­tively el­e­vated stock val­u­a­tions, bal­ance sheet tight­en­ing in the US, which is caus­ing funds to flow into US trea­sury’s from emerg­ing mar­kets like In­dia, and more re­cently po­lit­i­cal un­cer­tainty and the In­dian ru­pee’ weak­ness. —Ram.Sah­[email protected]

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