Domestic institutional investors (DIIs) have ramped up their bullish bets in the Indian derivatives market, reaching unprecedented levels of long positions in index futures. This aggressive stance indicates a strong conviction in a market rebound, even as foreign institutional investors (FIIs) display caution. Derivative analysts said, the high net long may be due to fund managers trying to hedge their high cash positions ahead of the short week with, only three trading days.
Record-Breaking DII Long Positions
As of April 8, 2025, DIIs held a net long position of 79,153 contracts in index futures, marking an all-time high. This surge surpasses previous highs observed during significant market events:
March 2023: 52,700 contracts
COVID-19 Crash (2020): 44,035 contracts
September 2019 (Corporate Tax Cut): 53,996 contracts
In each of these instances, the market experienced a notable uptrend in the subsequent month, suggesting that DIIs' increased long positions have historically aligned with market bottoms.
Contrasting FII Behaviour
While DIIs are exhibiting strong bullish sentiment, FIIs have been more cautious having built short positions worth 1.09 lakh contracts as of April 8.
Normally, mutual funds only engage in arbitrage trades. But certain funds sitting on high cash positions may have built long positions in derivatives to cover themselves from any quick up moves because of the current environment where news triggers sharp moves. Under the circumstances, before you buy stocks in the cash market, managers may be trying to capture the upside through derivatives, to avoid trailing the benchmark because of high cash holdings. This kind of positioning is accentuated because of a short week ahead, traders said.
Whether the high long position DII means a bottoming out of markets or a short-term positioning ahead of the short week can’t be said now, but historical data suggests a high position build-up is indicative of a market rally from a one-month perspective.
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