FPIs’ long-short ratio for index futures has risen to 36% compared to 11% during the October series expiry, said Rajesh Palviya, head-technicals and derivatives, Axis Securities. This indicates covering of short positions. The long-short ratio in index futures is a measure of the number of bullish positions versus bearish. A low reading means foreign investors are bearish. The reading was 12.4% on February 28, 2020, when concerns over the spread of Covid had erupted.
In the past two years, historical trends have indicated that a substantial build-up of short positions often precedes a market upswing, influenced by short covering. In the past five weeks, the Nifty has jumped 1,450 points, from 18,838 to 20,291.
According to Chandan Taparia, an analyst at Motilal Oswal Financial Services, the FPI long-short ratio function is an indicator of oversold and overbought conditions.
“A reversal from oversold levels, currently surpassing the threshold of 30%, triggered short covering activities,” he said.
“Now as long as Nifty holds above 20,000 zones, we are expecting this momentum to extend towards 20,500 and 20,800 zones led by some short covering activity as well.”
If the Nifty surpasses the 20,350 level, the index could potentially move up to 20,550-20,620 levels in the coming weeks, said Om Mehra, a technical analyst at SAMCO Securities. After a two-month sell-off, FPIs bought shares worth Rs 9,622 crore in November along with short covering.”The short-covering positions of foreign investors stood at 1,15,000 and remained robust at 56,000 post-November expiry,” said Rohit Srivastava, founder of Indiacharts.com.
FPIs had rolled over their short positions from October to the November series and added fresh shorts at the start of the series.
“Historically, when FPIs’ position are around 10% to 15%, there are generally shorts getting covered while around 75% to 80% of the long-short ratio, there has been profit booking in long positions, at the lower levels,” said Palviya.
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