FIIs hold 10 short bets for every long trade in index futures

FIIs are holding 10 short positions in index futures for every long trade; historically Nifty has witnessed a short-covering rally after the ratio dropped to such lows, shows F&O data.

Foreign Institutional Investors (FIIs) have been on a selling spree since June 30, 2025 in the futures & options (F&O) segment. FIIs have been net sellers of index futures in 24 out of the 28 trading sessions as of August 6 (Wednesday); with net sales totalling ₹33,493.55 crore, data suggests.  In the process, FIIs long-short ratio, which is buy-side open positions in index futures versus the sell-side open positions, has dropped to the lowest point since March 2023 at 0.09. This ratio implies that FIIs now hold more than 10 short bets in index futures for every long trade. 

Why are FIIs selling aggressively?

  Analysts attributed the persistent selling by FIIs to regulatory issues post the Jane Street development and lingering uncertainty around the US tariff policies. That apart, the June 2025 quarter earnings for fiscal 2025-26 (Q1-FY26) have been tepid, according to analysts, which has unsettled the FIIs to some extent.  "The Q1 earnings have not been so great, and the US tariff uncertainty on India still prevails, so probably FIIs don't want to get in the market in such a scenario", said Ajit Mishra, senior vice-president for research at Religare Broking.  That apart, the returns prospects in other markets may be luring FIIs away from Indian equities, Mishra adds.  Since June 30, 2025, the NSE Nifty has declined over 4 per cent; wherein FIIs have increased net short bets in index futures from 38,123 contracts on June 30 to present 167,091 contracts, shows the NSE F&O data.  ALSO READ | FPIs selling in F&O hits 2-year high; but rollovers hint at optimism ahead 

What does history say?

  Historically, a low FIIs long-short ratio in index futures has transcended into a higher possibility of a short covering rally, shows study by HDFC Securities.  Nandish Shah, senior derivatives & technical analyst at HDFC Securities highlights that since March 2020, there have been 4 instances of FIIs long-short ratio falling below 0.15 at the beginning of the F&O series (30-May-2024, 26-Oct-23, 29-March-2023 and 29-Sept-2022).  Market data shows that in the subsequent series, the Nifty had moved higher on all four occasions and clocked an average gain on Nifty of over 7 per cent.  Therefore, considering the historical evidence, there stands a higher possibility of short-covering by FIIs in the index futures in the coming days, said Shah. 

What to expect?

  Mishra believes that FIIs selling may continue, until there is clarity on the US tariff related challenge. He cautions that the market is not showing any signs of recovery as of now.  "Traders, however, are seen defending the 24,600 support on the Nifty. In case of a break below the same, the Nifty could fall towards its previous base around 24,450; below which a test of the long-term average around 24,200 seems likely," Mishra said.  Echoing a similar view, Shah of HDFC Securities also expects the Nifty to find support around 24,450 levels. In the worst-case scenario, he sees the Nifty dip to 24,200 levels, down 1.6 per cent from the current levels.  "On the upside, a break and sustained trade above 24,800 can possibly trigger a short-covering rally on the Nifty. Investors should wait for some signs of recovery in the overall sentiment before jumping to any conclusion," he said.  As an indicator, apart from clarity on US tariffs, traders, Shah suggests, can look at FIIs' trading activity in the cash segment for possible signs of a turnaround in the market sentiment.