FPIs turn bullish on India as short covering drives market higher

Mumbai: Overseas fund managers are at their most bullish on Indian equities since July, in contrast with their outlook earlier this month when bearish wagers were at record levels.

These investors have cut bearish bets in Nifty futures amid the bounce in Indian equities in the past two weeks that has brought the main indices near all-time highs reached in September 2024.

The long-short ratio-a market sentiment indicator that compares the number of traders betting on a rise in prices (long positions) to those betting on a fall (short positions)-based on foreigners' derivative positions stood at nearly 25% on Friday, the highest since July 9.


This shows these investors have been reducing short positions, a process known as short covering. The long-short ratio for Nifty futures has consistently remained under 20% since mid-July. "In the previous week, it was FII short covering that drove the market in general and the index in particular," said Sham Chandak, head of institutional equities, Elios Financial Services.

Fourth Week of Market Gaining
The liquidation of bearish bets happened along with share purchases.

According to data from the stock exchanges and Stockedge, foreign portfolio investors (FPIs) have bought shares worth Rs 1,880 crore in October so far, having sold to the tune of Rs 22,761 crore in September. These investors have sold equities worth almost Rs 1.96 lakh crore this year, a record, putting pressure on stocks and the rupee.

The Nifty and Sensex gained 0.3% last week, logging their fourth straight week of gains, though market momentum fizzled out late last week around the highs. In October, both indices gained about 5% each and are 1.6% and 1.9% away, respectively, from their records. The Nifty closing high is 26,216.05 and that of the Sensex is 85,836.12.

"Domestic buying has so far cushioned any downside, and with FIIs turning optimistic, benchmarks could scale new highs by the end of next month," said Dhupesh Dhameja, derivatives analyst at Samco Securities. "A sustained long-short ratio above 30% could further fuel the rally, potentially taking Nifty towards 26,400 levels by November-end."

The Nifty closed at 25,795.15 and the Sensex at 84,211.88 on Friday.