FPIs most bearish in 2 months; rapid turnaround unlikely: Analysts

Analysts say low FII long-short readings often trigger short-covering, but a sustained rally looks unlikely amid crude, bond-yield and geopolitical pressures

Overseas investors have turned the most bearish on Indian markets in more than two months, as weak global macroeconomic signals have made Dalal Street investments less attractive. Analysts said that while such low levels of foreign investor positioning often trigger short-covering rallies, a sustained recovery appears unlikely this time.

 

Foreign institutional investors (FIIs) are either selling index futures or holding short positions, signalling low confidence in the growth prospects of Indian equities. Funds typically cover short positions when the risk-reward equation changes. However, the US-Iran conflict, higher 10-year US Treasury yields and rising Brent crude prices are keeping foreign investors cautious.

 

The FII Long-Short Ratio, a measure of their long positions relative to short positions in index futures on the NSE, fell to just 8 per cent at Thursday’s close, its lowest level since July 23. Equity markets were closed on October 2 for Gandhi Jayanti. The Long-Short Ratio is considered a sentiment indicator, with lower readings indicating greater bearishness among FIIs.

 

The Nifty ended 0.9 per cent lower at 22,421.95 on Thursday and has declined 14.25 per cent so far this year. Foreign investors have consequently pulled out ₹2.69 trillion from Indian equities, according to the latest NSDL data. 

 

Vipin Kumar, AVP, derivatives and technical research at Globe Capital Market, said the short-term chart structure is in oversold territory, with the Nifty reaching key structural support levels in the 22,180-21,740 spot zone.

 

“Meanwhile, the Long-Short ratio has dropped to extreme lows, indicating that a potential bounce-back rally toward the 22,800-22,850 spot zone cannot be ruled out at this juncture,” he said. “However, given elevated crude oil prices driven by volatile geopolitical conditions and rising US Treasury yields, the chances of sustainability at higher levels remain low.”

 

Any sharp upside is therefore likely to face selling pressure on rallies, Kumar said.

 

A Business Standard analysis showed that FII short positions have remained below the 20 per cent mark on 159 of 182 trading days so far in 2026, and below 10 per cent on 46 occasions.

 

“FII long positions have remained below 10 per cent for some time, but unlike in the past, this has not triggered a recovery. The macro factors behind these short positions remain unchanged, with rising bond yields and crude prices, along with a weaker rupee, providing little incentive for FIIs to cover their shorts,” said Chandan Taparia, head, technical and derivatives research, Motilal Oswal Financial Services.

 

Selling pressure remains

 

Taparia said that while the Nifty is now deeply oversold, a sustained recovery may remain elusive until fresh positive triggers emerge.

 

“Given the current risk-reward, further shorting may also be less attractive. In the near term, the Nifty could remain range bound between 22,200 and 22,750, with any bounces meeting with selling pressure,” he said.

 

Kumar of Globe Capital also said that the formation of a solid reversal pattern or a stable base around these support levels would be critical for restoring bullish momentum.