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