Mumbai: Overseas fund managers have cut their bearish derivative bets on India over the past month, from near-lifetime lows in January, encouraged by signs of easing pessimism about the market outlook. But the ease in risk-off sentiment has not been convincing enough for them to go all-out bullish, with these investors still retaining a larger chunk of their bearish wagers, especially as uncertainty over the AI trade on Wall Street keeps the market on edge.

The Long-Short Ratio – number of traders betting on a rise in prices (long positions) to those betting on a fall (short)-of foreign portfolio investors‘ Nifty futures position stood at 19.4% on Friday, as against 7.5% seen exactly a month ago. Though the measure has fallen from 22.1% on Wednesday following the sell-off in the wake of the renewed AI-related concerns, showing foreigners have increased their bearish positions again, analysts are not concluding anything yet. The ratio made a lifetime low of 5.98% on September 30.

“FIIs have been on a bit of a rollercoaster lately,” said Vipin Kumar, AVP- derivatives and technical research at Globe Capital Market.

Kumar said that after a brief period of optimism fuelled by the India-US trade statement, the Long-Short Ratio of FPIs’ Nifty positions is retreating once more, fuelled by a sharp sell-off in US tech, driven by growing anxieties over AI disruption.
“The recent dip in the FII Long-Short Ratio suggests that the ‘smart money’ is hedging its bets.”

After the announcement of the framework for the US-India trade deal earlier this month, bullish bets increased to 16-17% of total bets from only 11% a day ago.
However, the IT sell-off on Thursday and Friday soured some sentiment. The Nifty ended 1.3% lower at 25,471 on Friday, while the Nifty IT index fell 8.2% during the past week. Akshay Bhagwat, SVP- derivatives research at JM Financial Services, said that since budget day, foreign investors have covered their short bets and also bought index futures, roughly to the tune of Rs 9,400 crore till date.

“However, Nifty has lost its momentum lately, and the Long-Short Ratio has cooled off, back below 20% on profit booking of long bets,” he said.

NO BIG MOVES
After Friday’s decline, Nifty is expected to hold above the 24,850-25,000 zone, said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services. “While the market has struggled to sustain momentum, it continues to form a higher base despite the STT hike, a weaker rupee, and geopolitical tensions,” he said. Taparia expects Nifty to oscillate between the budget-day lows of 24,500 and the highs of 26,300 seen after the US-India trade deal.

Kumar said that the cooling off of the Long-Short Ratio indicates any immediate upside for domestic markets remains capped as global headwinds outweigh local catalysts. “The short-term technical structure for the Nifty has shifted to a negative bias. Following the recent weakness, the index appears to be gravitating toward a price gap created during the February 3 rally, and the key support zone is placed around 25,200-25,000 spot levels,” he said.