MUMBAI: Options data signal that the Nifty could move in a 714-point range between 14943 and 15657 this week, with analysts expecting a relief rally after oil’s sharp, overnight fall of 5% Friday, June 17 on fears of demand destruction amid a rate hike induced recession in the US. They caveated, however, that continued Foreign institutional investors (FII) selling could act as a spoiler to a potential relief rally. The Nifty closed at 15293.5 and the Sensex at 51360.42 on Friday. The Nifty shed 908 points last week after FIIs sold a whopping 25,360 crore worth of shares, including Friday’s provisional figure of Rs 7819 crore.
“There is a chance for a bounce through 15600 plus before the market vends its way lower again,” said Rohit Srivastava, founder, IndiaCharts. “FIIs have created over 1.4 lakh net short positions on index futures (Nifty and Bank Nifty) and this could result in some short-covering as has happened in the past whenever their net short positions exceeded 1 lakh contracts.”
To be sure, on Friday the FIIs covered 5195 short index futures by buying them back, but they still hold in excess of 1.4 lakh shorts and any rally will hinge on their covering these apart from slowing down their cash market sales.
The relentless selling has been induced more recently by the US Fed raising rates by 75 bps on June 15, the most since 1994. This results in a flight of capital from emerging market equities and bonds into the dollar. The fall in the markets from the record high of 18604.45 in October last year could have been sharper had domestic institutional investors not been counterparties to FII sales.
For instance, from October through mid-June, FIIs have net sold shares worth a cumulative Rs 2.27 lakh crore while DIIs have been net buyers worth Rs 2.72 lakh crore. The fact that markets have fallen despite DIIs having absorbed FII sales in good measure, indicates sales by rich investors and corporates who don’t invest through the mutual fund route.
Companies with significant FPI holding include the likes ICICI Bank, HDFC twins, ITC, HUL etc. These have substantial weightage on the index. Other analysts added that for any meaningful rally FII sales would have to taper, or else the market could test 14200-14400 levels, going forward.