Shorts on Nifty, Bank Nifty hit record high. Are FPIs bracing for a market shock?

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Subscribe to enjoy similar stories. MUMBAI : Foreign portfolio investors (FPIs) had amassed a record 153,404 short contracts on Nifty and Bank Nifty futures as of Tuesday, a day before the Reserve Bank of India’s Monetary Policy Committee (MPC) begins its three-day meeting (5-7 February).

Markets widely expect a 25-basis-point rate cut. “These shorts are at a record high, adjusted for the change in lot size of Nifty futures, which took place at the end of January for monthly derivative contracts," said Rohit Srivastava, founder of analytics firm IndiaCharts.

Read this | FPIs double down on Nifty option sales ahead of MPC meeting outcome The size of these short positions signals heightened caution among FPIs. However, analysts believe a dovish MPC stance under new RBI governor Sanjay Malhotra could spark a short-covering rally.

This comes amid global uncertainty, particularly concerns over potential trade tariffs under a second Donald Trump presidency, which could weigh on riskier emerging market assets. Read this | On interest rates, RBI should ‘cross the river by feeling the stones’ The Securities and Exchange Board of India (Sebi) had directed exchanges to increase the lot sizes of Nifty and Sensex derivative contracts to ₹15-20 lakh from ₹5-10 lakh starting 1 October 2024, aiming to curb retail speculation in index futures and options.

FPIs primarily use index futures to hedge their stock portfolios, which stood at a cumulative $786.08 billion as of 15 January, per NSDL data. "The positions of FPI are extreme, and I think we can at best expect a relief rally ahead or around the MPC meeting outcome and not a massive short covering one where the upper end of the range is 24200 and the lower end at 23500," said Kruti