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FIIs cut bearish positions on index futures, hint at more upside for Nifty

On Wednesday, traders added huge OI at the 12,100-strike put for the current expiry.

, ET Bureau|
Nov 28, 2019, 07.55 AM IST
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The recent increase in the weightage of heavyweights, such as ICICI Bank, by the MSCI could have caused FIIs to short the indices as a hedge before buying the shares.
Foreign funds have bought big in India this month and the last, pushing higher the broadest stock indices. And sustained reversal of their earlier bearish bets suggests the current ‘bull’ run will be of some duration, taking stock gauges even higher.

Until November 27, FIIs have been net buyers of Indian shares worth Rs 22,710 crore in the current month. They covered their cumulative net shorts in index futures from 43,327 contracts on November 25 to 4,859 contracts two days later — on the eve of the monthly contract expiry.

This short-covering and the likelihood of foreign funds turning net purchasers of index futures contracts could drive the Nifty higher from Wednesday’s close by another 100-150 points on a “further short squeeze,” said Bhavin Mehta of Dolat Capital.

These factors pushed up the Nifty to a record closing high of 12,100.7 on November 27. In the current monthly series of derivatives expiring Thursday, the maximum open interest — a gauge to assess the quantum of money flowing into an asset — was at the 12,100-strike call.

However, on Wednesday, traders added huge OI at the 12,100-strike put for the current expiry. Over 13 lakh shares (75 shares equal one contract) were added, taking total OI to 26.45 lakh shares. This huge selling of at-the-money puts means that traders don’t expect the market to close below 12,100 on Thursday. This suggests the expectations of further upside for the index.

The recent increase in the weightage of heavyweights, such as ICICI Bank, by the MSCI could have caused FIIs to short the indices as a hedge before buying the shares. Now, since they have completed the buying and covered most of their index shorts, stocks are likely to see more ‘buy’ orders.

“The Nifty could jump to 12,200-12,250 in the short term because of FIIs becoming net buyers of index futures,” said Rajesh Palviya, head, derivatives, Axis Securities.

However, other market analysts such as Viral Berawala, director, Buoyant Capital, believe that markets would begin penciling in risks, such as lower GDP growth, once indices hit a fresh high.

In the fiscal year through November 27, FIIs have net purchased shares worth Rs 37,735 crore. Over this period, the Nifty has risen by 3.7 per cent. The bulk of these purchases have come in October and November, helping the Nifty rise 5.5 per cent.

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