Retail versus FPIs, the tug-of-war building in derivatives

livemint.com:

MUMBAI : A battle of nerves has built up in India’s derivatives market with foreign portfolio investors (FPIs) betting the indices will rise further, while an opposing camp of retail and wealthy investors is equally convinced they can correct. Even as markets have hit record highs, National Stock Exchange’s Client category—comprising largely high-net-worth individuals (HNIs) and retail investors—has taken a sizeable bearish position on index futures contracts, mainly the Nifty and the Bank Nifty, while FPIs have a bullish position on them. NSE data showed that Client held 85,251 cumulative net short contracts as of 22 December, while FPIs held 84,690 net long contracts.

A short position implies caution while a long position means bullish sentiment on underlying indices like the Nifty. Interestingly, the positions of the two investor classes coincide with the Nifty hitting a record high of 21,593 on 20 December. In recent occasions, the Client category has trumped FPIs.

For instance, on 2 November, Client was net long index futures by 146,411 contracts while FPI was net short 175,698 contracts, and the Nifty traded at 19,133.25. However, from that level, the Nifty rose 12.85% to a record high of 21,593 on 20 December, compelling FPIs to close out their huge short positions, while Client booked profits as the markets kept rising. Earlier, on 22 March, Client was net long 153,900 contracts, while FPI was net short a record 196,378 contracts.