FPIs heavily bearish, but that may well be a bullish signal
corporate earnings growth and rising US bond yields are keeping them cautious.
Foreign portfolio investors' long-to-short ratio, an indicator of overall bullish versus bearish positions of foreign investors, in index futures was at 17.2%. When the reading is at 12-18%, the bearish positions are considered high. It touched 13.5% on January 1 and rebounded as foreign investors cut their bearish positions amid the market bounce.
Too Much Bearishness?
Analysts are, however, considering the long-short ratio of FPIs' index futures positions as an optimistic indicator. A lower reading indicates oversold conditions in the market, opening up the possibility of a market rebound led by squaring up these bearish bets.
«Historically we have seen that when the FIIs' long-short ratio comes in the range of 10-15%, the positions are seen as short-heavy and the room to create fresh short positions by them reduces,» said Ruchit Jain, vice president at Motilal Oswal Financial Services. «Also, considering that we would see third-quarter corporate earnings starting this week, we expect FIIs to cover some of their short positions in the near term.»
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