At 85.1, FIIs’ short-long proportion in the index future segment continues to be near a record high. While this proportion has been consistently above 80 since 30th Jan 2025, much more worrying is the fact that 53.7% of the total open interest (OI) in this segment is held by all participants including FIIs, DIIs, clients (retail) and proprietary traders is now cornered by FIIs alone. This is higher than the 45.9% shorts held by FIIs on 27th January, when Nifty hit 22,800 last month. Incidentally, when the Nifty swung higher 1,000 points from that date, FIIs were seen piling onto shorts, suggesting that the bearish view is sticky and is in anticipation of a large fall.
Rollovers suggest hesitation
At 23.6% and 31.9%, Nifty and Bank Nifty’s rollovers are the lowest in the last three months. The respective figures were 41.3 and 47.8 for January. This probably suggests that F&O traders are holding their cards close to their chest, wanting to take a final call on whether to roll over or not, until perhaps as late as possible.
Recovery attempts seen
Though Nifty ended under 22,800 completing four consecutive days of decline, the week was not devoid of positivity. This was visible only in select pockets, and would not have been visible to index watchers. In fact, by the end of the week, about 40% of the Nifty 500 constituents were seen trading above their respective 10-day SMAs. To lend a perspective to this figure, such high figures were not seen after the first week of February.
Mean reversion possibilities
We are now 0.9%, 2.8% and 5.2% away from 10, 50 and 200-day SMAs. When we hit 22,800 last, on 27 January, these figures were, 1.4%, 4.2%, and 4.8% respectively. These figures were 2%, 5.8% and 0.95% respectively on 21st November, after which we swung higher for the first time since the decline started on 27th September. This goes to suggest that we are yet to be at historical extremes that warrant a reversal. Just not yet, but not far either.
Oil & Gas index to gain pace
The Oil & Gas index has been falling since July 2024 and looks to have taken support around the 61.8% Fibonacci retracement level of 9,762 from where a reversal is underway. The Stochastic momentum indicator has shown signs of reversal in the weekly scale and looks to be gearing up to add another leg to the reversal. The average RSI of the constituents is below 45 which is giving room for further upside in coming days. We expect Reliance, Adani Total Gas, ONGC and Gujarat Gas to lead the index towards 10,500 levels.
Pharma losing steam
The Pharma index has formed a bearish candle in the weekly scale for the second straight week. The MACD in the monthly chart has broken below the signal line indicating more downside in the coming weeks. It is currently trading very close to the horizontal support of 20,270 and this level is expected to be taken out such a move could take the index towards 19,500 levels backed by stocks like Sun Pharma, Dr Reddy, Torrent Pharma, Mankind, Lupin and Aurobindo Pharma.
Nifty outlook
Despite the negative trend that prevailed during the last four consecutive days, the large breakdown that we had set out with, at the start of the week, failed to unfold. Meanwhile, 28% of small-cap stocks that dipped at least 20% from the September peak have bounced at least 25%, hinting at an emergent risk appetite.
But, VIX at 14.5 is nowhere close to the 18 levels that we saw when we hit 22,800 last on 27 January, or on 21st November when we hit an interim low for the first time since the decline began in September. While mean reversion conditions are slowly maturing, we feel that another leg down could unfold, letting fear peak. These conditions encourage us to keep aside the potential for a 21,300 collapse and instead set eyes on a swing higher from 2the 2,550-22,300 region.
First published in Financial Express
