FIIs net sold over 68,000 Nifty futures in July series; what to expect now?

FIIs have been net sellers in index futures for 11 straight days. Their open positions in Nifty futures jumped by 47% thus far in July series, implying significant short build-up; suggests F&O data.

Foreign Institutional Investors (FIIs) have been net sellers in the index futures, particularly Nifty futures in the derivatives segment, for almost the entire July series thus far.  The NSE futures & options (F&O) data shows that FIIs have net sold index futures to the tune of ₹16,844.97 crore, which includes a total of 87,554 contracts of Nifty, Bank Nifty and Nifty MidCap futures, thus far (11 trading days) in the July series. FIIs were net buyers only on June 27 during the July series.  Foreign investors have been aggressive sellers in Nifty futures, almost 78 per cent or 68,622 contracts where net sold in Nifty futures so far in the July series. Amid this, the open interest (OI) in Nifty futures has jumped by 47 per cent or 43,895 contracts, thus implying potential short build-up in the futures contract. During the same period, the NSE Nifty 50 index has declined 1.8 per cent.  As per the NSE F&O data, FIIs long-short ratio in index futures has dropped to 0.22. This ratio implies that FIIs now hold nearly 5 short bets in index futures for every long (buy-side) bet.  The weak start to the Q1 earnings and Nifty slipping below 20-DEMA has triggered build-up of short positions, reckons Ajit Mishra - SVP, Research, Religare Broking. Data shows that in the last three days FIIs have net sold index futures worth ₹8.650 crore.  The analyst, however, believes there could be some respite in case the Nifty manages to hold 24,900 levels.   

 

  In part, it has been observed that short positions by FIIs tend to act as a layer of cushion for the market on the downside. In case of any positive news flow, FIIs are kind-of forced to cover their short bets, which in turn trigger a sharp up move.  ALSO READ | Can Sensex fall below 80,000-mark in July? Here's what chart says  Meanwhile among other market participants, domestic institutional investors (DIIs) and retail investors hold around 2 long bets in index futures for every short trade. Proprietary traders hold a rather neutral bias, with near about an equal amount of bets on the long and short-side of trade.  Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities in a note highlights that the derivatives (F&O) data paints a distinctly bearish picture, with a possibility of further downside in the near-term.  Call writers have been aggressive, particularly at the 25,500 strike, which now holds the highest open interest of 1.26 crore contracts, establishing a strong overhead supply zone. In contrast, Put writers appear hesitant at current levels, suggesting a lack of confidence in any near-term upside. The 25,000 strike has seen notable put open interest accumulation of 89.89 lakh contracts, emerging as an immediate support level, wrote the analyst in a note.