In the F&O segment, the FIIs index futures long-short ratio fell to 0.15 on May 3 from 0.98 the day before. Net monthly sales in the cash market increase to Rs 43,800 crore, the most since June 2022.
Foreign Institutional Investors (FIIs) were incredibly negative in advance of the results of the Indian Lok Sabha elections, which are scheduled on June 4. The exit polls will start to come in on June 1st, a Saturday.
The Nifty dropped around 1% on Thursday, and the FIIs increased their aggressive short positions in the derivatives market’s index futures. After the May series contract expired, the FIIs index long-short ratio, which was previously at 0.98, suddenly fell to 0.15, with index shorts reaching 87.13 percent.
An indicator of the proportion of bullish bets compared to bearish positions is the index futures long-short ratio. FIIs are pessimistic about the Indian equity market when the ratio is low, and vice versa. According to NSE data, the most regularly traded futures contracts are the Nifty, Bank Nifty, and MidCap Nifty.
Since the FIIs believe that the Indian markets are expensive, nobody is willing to wager on the outcome of the election. The recent F&O expiry for May contracts has increased anxiety and volatility. Unmesh Sharma, head of institutional equity at HDFC Securities, stated that people are waiting impatiently for the results of the Lok Sabha election to find out who will form the next government, with what strength, and what implications this will have for policy continuity.
Remarkably, earlier this month the FIIs had also placed bearish wagers on the markets, as evidenced by the index long-short ratio falling to a low of 0.36 on May 16. A review of the total index long-short ratio for May reveals that FIIs were compelled to cover short positions and become bullish for a little while as the Nifty rebounded and surged to record highs. The ratio shot up to 1.17 on May 28.
Additionally, FIIs have been active sellers in the cash market as well; as of May 30, net sales of stocks reached Rs 43,827 crore, the highest net monthly sales since June 2022. FIIs had net sold stocks for Rs 1.28 lakh crore in the first five months of the current calendar year.
“A major warning sign has been issued as the Nifty50 has tested the 50% Fibonacci retracement of the advance observed from the lows of 21,820 to the lifetime high. The 22,450–22,400 level appears to be the bulls’ final hope since any significant breakdown is likely to upset the technical order. On the higher end, Sameet Chavan, head of technical and derivative research at Angel One, said that the 22,600–22,620 zone would be considered as an intermediate obstacle, followed in the near term by the strong resistance of 22,800.
Nevertheless, given the results of the Lok Sabha election and the exit polls, retail investors appear to be quite positive about the derivatives market.
The long-short index futures ratio for retail investors as of May 30 was 2.24, meaning that for every short bet, there was more than one bullish gamble. At 69.09 percent, the total index longs were at their highest level since the pre-election outcome period of 2014.
Comparably, retail investors had over 92.88 percent of their positions in single stock futures long; this is May’s highest percentage to date. By contrast, the long position of FIIs in stock futures is 55.82 percent.
However, Sharma of HDFC Securities anticipates some profit booking to occur following the results of the Lok Sabha elections as a tactic. He claimed that major global asset allocators and funds had no opinion on the results of elections in and of themselves. He stated that certain foreign funds that are presently sitting on the sidelines ought to temporarily enter the markets.
“The general trend of capital shifting to China and a slight pullback from India because of valuation worries is still present. Individuals who are exporting money from India are also pulling out of emerging markets (EM). However, China appears to be the greatest recipient of that money, according to individuals who are taking it out on valuation concerns, he said.
