MUMBAI: One indicator on FIIs has raised hopes of market participants of a bounce or a relief rally in the market, which has fallen for six straight sessions through June 17. FIIs have built up bearish bets on index futures – Nifty and Bank Nifty– to a 27-month high.
The quantum of bearish bets as of June 17 stood at 1.41 lakh contracts, the highest since 1.73 lakh contracts on March 6, 2020 preceding the Bank Nifty-induced lockdown of March 24, 2020. Whenever FII positions are net short by 1 lakh contracts or more, the Nifty tends to bounce.
As the net contracts are above 1.4 lakh as of June 17, a relief rally through 15,600-159,00 –odd is being anticipated by the likes of Rohit Srivastava, founder IndiaCharts, who cited four past occasions when the Nifty bounced after FII bearish bets on index futures exceeded 1 lakh contracts. For instance, on 29 th August 2019, the Nifty rallied from 10948 through 12352 on January 17, 2020. Similarly, on April 4, 2018 the Nifty rose from 10128 when FII position stood at 1.34 lakh net short contracts through 11738 on August 2018 as FIIs covered their short positions and built bullish bets.
The same episode recurred on October 26, 2018 when the net shorts were at 1.27 lakh contracts and the Nifty was at 10030. From there Nifty rose to 12088 on June 3, 2019 when the FII contracts stood at a positive 64103 On March 6, 2020 FII index futures negative bets stood at 1.73 lakh contracts and Nifty was at 10989. Since then the index rose to 11647 on August 28, 2020, cited Srivastava.