In an unprecedented move, Foreign Institutional Investors (FIIs) have added the highest ever net index shorts in a single session in the history of the market, dramatically reducing long positions ahead of the general election results.
On May 30, markets sank, with benchmark indices Sensex and Nifty ending down nearly 1 percent each. Experts anticipate continued market volatility and range-bound trading in the lead-up to the exit polls and election results.
Record addition in net shorts: FIIs increased their net shorts from 5,000 contracts to 2.97 lakh contracts in a single session on May 30.
Dramatic reduction in long positions: FIIs reduced their long positions by 80 percent in a single session, dropping from 257,000 contracts to 51,000.
Sharp fall in FII’s long percentage: This sharp move caused the FII long-short ratio to plummet from 50 percent to just 13 percent in one day, reflecting heightened caution ahead of the highly anticipated election results.
Market activity: Heavy selling by FIIs
On May 30, FIIs net sold a total of Rs 19,417 crore in Indian equities, across cash (Rs 3,050 crore), index futures (Rs 7,925 crore), and stock futures (Rs 8,442 crore).
However, with the MSCI rebalancing effective from May 31, the market is expected to see an inflow of approximately $2.5 billion. MSCI's quarterly rebalancing will lead to 13 new stocks being added to the MSCI Global Standard Index, while three stocks will be excluded. Consequently, India's weight in the MSCI EM Index will rise to 18.8 percent.
Exit poll results, due on June 1 ahead of the actual election results, are also likely to influence market movements.
Weak start to June series with heavy FII shorts in index futures
“The June series starts with weak positioning by the FIIs in index futures, ahead of the election outcome, the most awaited market-moving event. Rollovers too are slightly below averages as positions stay light ahead of the event,” said Akshay Bhagwat, VP of Derivative Research at JM Financial. Short-term momentum indicators have also turned neutral after the last 3-4 sessions of weakness, he said, adding that 21,800 is the key Nifty level that will decide the future trend.
Nifty support, resistance, trading range pre-election results
Bhagwat expects market choppiness around the exit polls. He noted that the Nifty could rise to 22,750-22,800 in a pre-election results recovery and may remain in a range of 22,300-22,800.
Sudeep Shah, Head of Derivative and Technical Research at SBI Securities, expects the zone of 22,250-22,270 to act as immediate support for the index. “Any sustainable fall below 22,250 will lead to a sharp correction till 22,000-21,850,” he added.
Bullish view intact post-election results
Shah believes that the 22,700-22,750 zone will act as an immediate upside hurdle for the index, beyond which there may be a rebound up to 22,980-23,100.
Bhagwat maintains a positive broader view post-event, as long as 21,800 holds. He has upside targets at 23,300-23,700.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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