FIIs bearish in derivatives as DIIs hold steady; volatility rises, Nifty outlook guarded ahead of US elections

Over the last two trading sessions, the derivatives market has shown increased open interest (OI) in Nifty and Bank Nifty futures, with FIIs positioning on the short side. According to Sudeep Shah, head - technical & derivatives research at SBICAP Securities, cumulative open interest across current, next, and far series rose by 0.07 percent on October 31, following a 1.46 percent increase on October 30.

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This build-up in positions, alongside a decrease in the put-call ratio (PCR) to 0.79 for the Nifty October monthly series, indicates mixed sentiment. The relatively strong call interest suggests that while investors are positioning for potential upside, there is prevailing caution in other indicators.

FIIs have sold over Rs 1 lakh crore in the cash segment throughout October, with substantial short positions in index futures, according to Ruchit Jain, lead research analyst at 5paisa.com. This has brought the FII long-short ratio down to around 35 percent, with a 65 percent tilt towards shorts.

Jain said that until this aggressive selling shows signs of easing, the market is likely to maintain a negative bias. He added that 24,500 is a significant level in the options segment, with substantial open interest concentrated there. Any move above this level could signal short covering, but until then, pullbacks are expected to face selling pressure.

DIIs balance out FIIs’ caution

In the cash market, DIIs have injected Rs 1 lakh crore in October, cushioning the impact of FII outflows and providing some stability to market sentiment. Meanwhile, in the options setup, open interest concentration is high at the 24,400 and 24,500 strike prices on the call side, and at 24,300 and 24,200 on the put side.

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For Bank Nifty, the OI PCR sits at 1.08, showing more balanced positioning. The volatility index, India VIX, climbed to 15.51 on October 31, marking a 6.85 percent rise. According to Shah, the immediate resistance for the India VIX is at 15.80. Any breakout above this level could signal heightened market swings.

Sectoral outlook

Shah said that certain sectors are poised to outperform in the short term despite the cautious derivatives setup. Nifty PSU Bank, Nifty Private Bank, and Nifty Financial Services indices are likely to continue their upward momentum, supported by technical strength. In contrast, sectors such as Nifty Auto and Nifty Oil & Gas may face continued underperformance. Institutional investors may selectively focus on financial and banking stocks while remaining wary of cyclical sectors sensitive to macroeconomic conditions.

Nifty, Bank Nifty outlook

The outlook for the coming sessions remains cautious, with FIIs adopting a bearish tilt. According to Shah, the resistance levels for Nifty are set at 24,500–24,530, with a potential rally to 24,650 if it clears these levels. Ruchit Jain of 5paisa.com is also cautious, saying that a move above 24,500 would be the first indicator of short covering and potential buying opportunities. Otherwise, pullbacks are likely to encounter selling pressure.

For Bank Nifty, which has shown a weaker setup compared to Nifty, the immediate resistance lies at 52,200–52,250, with support between 51,400 and 51,300.

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