FIIs start Nov series with light positions; bias tilted towards bearishness

F&O cues for Nov 04: The NSE F&O data shows that FIIs hold more than 3 short bets in index futures for every bullish position. Retail hold 2 longs for every short.

Futures & Options (F&O) Insights for Monday, November 04: Foreign investors have reduced their net holdings in index futures to the lowest in more than 2 months. FIIs are seen starting the November F&O series with roughly 2.76 lakh contracts as against a high of 7.17 lakh contracts on September 23. 

 

Aggressive selling by FIIs, due to a tactical shift to China, has impacted the domestic market appeal, which was already affected by weak corporate earnings and premium valuations, said Vinod Nair, Head of Research at Geojit Financial Services.

 

Any reversal in FIIs' stance will require an improvement in domestic corporate earnings and attainment of fair valuations. Of late, EMs are also consolidating ahead of the US presidential election and the upcoming FOMC interest rate decision.’ the analyst said in a note.

 

 

Equity markets may experience sharp swings this week owing to the US Presidential elections on November 05 and the US Federal Reserve Policy on November 07. That apart, Q2 earnings could sway mood at individual counters.

 

On the technical front, Jatin Gedia, Research Analyst at Sharekhan sees crucial support for Nifty at 24,200 – 24,180 levels; and resistance at 24,500 – 24,550.

 

Key Insights from Nifty options data

 

The Nifty options data reflects a cautious tone, with aggressive call writing outweighed put activity, indicating a bearish leaning. The highest open interest is observed at the 24,250 strike Call and the 24,200 Put.

 

Elevated call writing in the 24,250 – 24,500 range indicates increased confidence among sellers, while put unwinding points to a notable shift towards bearish sentiment. The put-call ratio (PCR) has eased from 0.86 to 0.79, reinforcing a bearish outlook, explains Dhupesh Dhameja, Technical Analyst, SAMCO Securities.

 

In case of Bank Nifty, active trading in the 51,600 – 51,900 Call and 51,000 – 51,500 Put range points to substantial resistance from call writers around 51,600 – 52,000 and firm support between 51,000 and 51,500.

 

The Put-Call Ratio (PCR) fell from 0.91 to 0.68, preserving a bearish outlook. With the 'max pain' level at 51,700, this point is likely to be crucial in setting the near-term trend, Dhupesh Dhameja said.

 

FII v/s Retail v/s Proprietary traders: Who is bullish/ bearish?

 

Foreign institutional investors (FIIs) were net sellers of index futures in the last two trading sessions, including the special Muhurat trading session. FIIs net sold index futures worth Rs 1,989.46 crore on Thursday, the expiry session for the October series, while net purchased index futures worth Rs 95.53 crore on Friday.

 

The NSE data shows that FIIs net sold 15,981 contracts of Nifty futures to the tune of Rs 973.07 crore on Thursday, 13,240 contracts of Bank Nifty futures for Rs 1,031.31 crore. 

 

The data shows that FIIs open interest (OI) in index futures at a start of the series stands fairly light at 2.76 lakh contracts. FIIs seem to have covered shorts in Nifty futures, while created some fresh bearish bets in Bank Nifty in recent trading sessions.

 

Pursuant to which, the FIIs long-short ratio in index futures has dropped to a low of 0.29. This ratio implies that FIIs hold more than 3 short positions in index futures for every bullish trade.

 

Meanwhile, retail investors' long-short ratio in index futures rose to 1.89; whereas that of proprietary traders moved 5 basis points higher to 0.75.