FIIs reverse bearish stance, long position rises to 34%; exercise caution but stick to 18300 target on Nifty

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FIIs reverse their trend in April, with 34% of their index futures positions being longs. Across participants, FIIs’ long position have risen to 14.9%.

With longs constituting 34% of their index future positions as on last Thursday, FIIs have come off a long way from the acutely bearish stance that they had adopted for almost three months on the trot, to the point that towards the end of March, shorts constituted 92.25% of the their index future positions. Around the same time, we had earmarked April as the ideal month for witnessing short covering, which has incidentally unfolded to see Nifty test the 17,800 mark.

Across participants, FIIs’ long position have risen to 14.9%, when compared to 6% just three weeks back. This positivity was also reflected in other segments as well as with FIIs holding 10.6% of the index put shorts, when to the 30 day average of 9.3%. They also hold as much as 41.1% of stock future longs, also up from 38.9%, during the same period.

So, while all this positivity was in line with expectation, the question now is whether stocks and indices have run far ahead of themselves to warrant a correction. Stock futures do not suggest a directional bias with 38.2% stocks witnessing long addition, while 37.7% witnessed short addition. This stalemate is to be expected as traders eye earnings based positioning rather than index based moves. Incidentally, the Nifty 50 stocks also painted a similar picture with 46% and 44% on the long and short side respectively. Bank Nifty however had 83% of its stocks witnessing long addition on Thursday. So, despite the positive run in the last fortnight, there is no evidence towards exhaustion, among futures, as yet.

In fact 55% of NSE 500 stocks are still trading below 200 DMA, bolstering expectations of tailwinds. Nifty 50, being the benchmark index, surely has run up quickly, with 64% of its stocks above 60 DMA. But, 53% of NSE 500 stocks are still below this average, suggesting that while those run up too quickly,there is no evidence that this could lead to a broad based correction lower.

Incidentally, in the last week there were visible signs of exhaustion, but these are classic bear traps, which are usually followed up by rapid rise. This encourages us to stick with the extended target of 18,300 which we had adopted mid week. We will however not abandon caution, and place exhaustion triggers at two points. One above at 17,976, the initial upside target before a consolidation unfolds. And the other lower, at 17,708, the VWAP based support, a break beyond which is required for forcing us to abandon the 18,300 view.

First published in Financial Express


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