FIIs build shorts in Nifty in last 2 days; most bearish since May 2024

Cues from derivatives market for December 31: FIIs now hold more than 5 short positions in index futures for every long trade. Among individual stocks, NSE F&O data shows significant short build-up at

Derivatives Market Insights for Tuesday: The Nifty January futures declined merely 0.4 per cent in the last two trading sessions. The open interest (OI), however, has risen sharply by nearly 11 per cent primarily on account of fresh short bets by foreign institutional investors (FIIs) in the futures & options segment.  The data from the NSE shows that FIIs added 31 per cent i.e. over 40,550 contracts on the short side in Nifty futures in the last two trading sessions. They net sold 60,800 contracts of Nifty futures in the last three trading sessions, which included some long unwinding. Among the other key indices some long unwinding is visible in Nifty Bank and Nifty MidCap futures in recent days.  Pursuant to which, FIIs overall long-short ratio in index futures dropped to 0.17 - the lowest since May 31. The ratio stood at 0.16 then, and was 0.15 on May 30. The present ratio implies that FIIs hold more than 5 short bets in index futures for every long position.  What lies ahead for the Nifty?  On the daily chart, the Nifty etched a prominent bearish candlestick, marked by a pronounced upper shadow and a solid body, signifying the sellers’ control. The close below the previous 5-day low and the 200-day exponential moving average (200-DEMA) further reinforces bearish bias, said Dhupesh Dhameja, Derivatives Analyst at SAMCO Securities.  Hovering around the pivotal 23,500–23,550 range, which aligns with a major swing low, the index has entered a critical juncture for any chance of reversal. Meanwhile, attempts to recover were repeatedly thwarted near the psychological 24,000 threshold as buying momentum failed to sustain. The daily RSI slid below 40, emphasizing weakening bullish momentum, the analyst explained.  Meanwhile, the Nifty options data revealed a substantial rise in call writing from 23,700 to 24,000, while unwinding in higher-strike puts. The Put-Call Ratio (PCR) slipped to 0.74 from 0.91, indicating waning bullish conviction. Despite this, the "max pain" point at 23,900 suggests limited downside risk in the near term, Dhupesh added.  Echoing similar view, Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates believes that the 23,500-23,540 will act as a key support for the Nifty. In the immediate term, Nifty is expected to consolidate between 23,500 and 23,900, with a breakout on either side defining its future trajectory, the analyst said.  What are other participants doing?  Meanwhile, retail investors continue to remain bullish on the market. Retail investors long-short ratio in index stands above 2 - indicating 2 long trades in index futures for every short position.  Domestic Institutional Investors (DIIs) are holding neutral view on the market, with an equal amount of long and short bets in index futures. Whereas; proprietary traders are seen holding nearly 3 short positions for every 2 long bets in index futures.  Stocks in focus  Among individual stock futures - Jindal Stainless has seen the highest short build-up in the last two trading sessions. The stock has plunged over 6 per cent alongside a 32 per cent increase in OI. RBL Bank, Prestige Estates, Supreme Industries, PFC and Cummins are few of the other notable stocks with short build-up.