FIIs opt out of futures market

Foreign institutional investors (FII), the dominant players in the derivatives segment, have started selling heavily in the futures segment. This could indicate that the cash market is unlikely to move up sharply in the coming days. Over the past one month, key indices have risen by nearly 15%.

On Tuesday, as per the NSE data, FIIs net sold Rs 166 crore in the futures and options (F&O) market. On the same day, they net sold Rs 9.72 crore worth of shares as per the Securities and Exchange Board of India (Sebi) data. On Wednesday, FIIs sold equities worth Rs 50 crore in the cash market, while in the derivatives segment, they were net sellers to the tune of around Rs 450 crore. – September series.

During the previous three trading sessions, the Nifty put volumes rose by 15% on Monday, 35% on Tuesday and 9% on Thursday, an increase of nearly 70% in the previous three trading sessions, whereas Nifty calls have declined. Overall volumes are up about 10% in the previous three trading sessions in the F&O segment. This further strengthens the underlying that short positions are being built aggressively in the market. Further, the F&O data indicates squaring off of long positions, which is a sign of caution.

The market has already started throwing weak signals in the form of PCR (put call ratio), which is biased against the puts. The Nifty PCR (put call ratio) is currently at 1.57. This means the market is beginning to see a huge build up of short positions in the benchmark index – Nifty.

As on Wednesday August 23, Nifty puts are almost 1.6 times the calls for the August series. Open interest (OI) positions in Nifty August series calls were around Rs 3,400 crore whereas OI for Nifty August series puts were around Rs 5,400 crore.

Puts have increased aggressively in the previous few trading sessions. In the past these have been indicators of weakness in the benchmark indices.

And already the Indian market is giving away some of its bullishness and trading lower. Markets opened lower on Monday but closed positive, it ended flat on Tuesday and could not sustain selling pressure on Wednesday. The market rallied on Thursday after a weak start, but the mood is a bit cautious after the runaway gains over the last one month.