FIIs increase long positions in Futures and Options, push Nifty to all-time high ahead of election counting

June futures gained 3.34% on 3 June, with open interest dipping by 3.4%, pointing to overall short covering.

Foreign Institutional Investors (FIIs) significantly bought Indian equities in both cash and derivatives markets on 3 June, building fresh long positions and covering shorts, and propelling benchmark Nifty index to a new all-time high.

FIIs improved their long-short ratio for index futures from 14 percent to 28.26 percent by buying over 1.2 lakh index futures contracts. This shift came amid robust short covering on June 3, after exit polls released over the weekend showed an overwhelming election win for Prime Minister Narendra Modi’s BJP-NDA, bolstering the market sentiment for the near term.

Market performance and technical overview

The Nifty index opened with a significant gap-up, later experiencing minor profit booking before resuming its upward momentum. It formed a strong base near the 23,060 level and closed above 23,250, gaining over 3 percent. This surge pushed Nifty to an unprecedented high just ahead of the general election results.

Also Read: Nifty, Sensex at record high: Here are important metrics that capture market sentiment post exit polls

Sudeep Shah, Head of Technical and Derivatives at SBICAP Securities, noted that on a daily scale, Nifty formed a small body bearish candle with a long lower shadow, indicating buying interest at lower levels. The index's movement at an all-time high is supported by bullish momentum as indicated by all moving averages and momentum-based indicators.

In the derivatives market, June futures gained 3.34%, with open interest dipping by 3.4%, pointing to overall short covering, especially in large-cap stocks. The OI Put-Call Ratio (PCR) for the current weekly expiry is 0.89, while for the June expiry, it stands at 1.22, indicating a bullish outlook.

Key Nifty levels to watch and market indicators

In the options space, writing was observed even in far out-of-the-money (OTM) contracts amid high implied volatilities (IVs), which reduced slightly during Monday’s trade, said Arun Mantri, Founder of Mantri Finmart.

He noted that while option writers were active on both sides, the 23,500 strike price call option holds significant call open interest, followed by the 24,000 strike, acting as immediate resistance. On the put side, the 23,000 strike has substantial open interest, followed by the 22,500 strike, providing strong support.

A sustainable move above 23,350 could trigger a rally to 23,550 and potentially to 23,700. Conversely, the 23,060-23,000 zone is expected to provide support in case of a decline.

Volatility index India VIX saw a sharp decline of nearly 15 percent on June 3, closing below 21 following the exit polls. A further drop below 19.50 could lead to a sharp reduction in volatility to 17, as final election results pour in later in the day today. Resistance for India VIX is now at 24, above which Nifty could experience increased volatility, said Shah.

Sectoral highlights and stock movements

Despite significant long positions in index futures, FIIs maintained shorts in the IT and Pharma sectors due to a sudden appreciation in the rupee, triggering fresh shorts. Short positions in the weekly contracts of Bank Nifty and Nifty are also expected to be covered by the weekly expiry, said Arun Mantri, Founder of Mantri Finmart.

Among large-cap stocks, Reliance Industries experienced a major breakout on the daily charts, comfortably trading above the psychological 3,000 mark. Supported by high volumes, Reliance is expected to test levels above Rs 3,300. In the banking sector, Bank of Baroda broke out of its consolidation range and is set to test levels above 340 in the short to medium term, said Mantri.

Market outlook

As the general election results approach, FIIs' increased long positions and reduced short positions indicate a positive market sentiment. This optimism, coupled with strong technical indicators and significant movements in key stocks, suggests potential for continued upward momentum in the Nifty index. Investors remain cautiously optimistic, closely monitoring upcoming market developments and election outcomes.

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