Domestic institutions hold huge short positions in Indian markets

In a rare move, the domestic institutional investors (DIIs) comprising insurance companies, mutual funds and other large financial institutions, are holding huge short positions, which are bearish bets, in index futures.

Data show DIIs held 73,679 contracts of index futures short on Thursday, their second largest bearish bet on record on Indian market. On the other hand, the foreign portfolio investors (FPIs) and India’s retail investors are holding huge net long positions or bullish bets.

“DIIs have never had such substantial position in index futures before, but this reflects their willingness to hedge market risk,” said Rohit Srivastava, Strategist, Indiacharts.

‘Need caution’

Srivastava is of the view that there is too much optimism currently, which requires caution. “If you go by Nifty’s December month futures, it was near record high for the past few days. Traders were willing to pay a high premium to rollover bets to the next month. But DIIs are not as euphoric. Last time, when FPI long positions reached around 1,00,427 contracts, the markets topped out in September 2021 at 18,600,” Srivastava said.

Currently, FPIs and India’s retail investors are largely bullish. On Thursday, FPIs and clients (retail) together held net long positions to the tune of 1,11,494 contracts in index futures. Between September 2021 and July 2022, FPIs were hugely negative on the market. Their selling touched $35 billion in less than a year. Only in the past three months, they have pumped back $11 billion in markets.

But when FPIs were on a historic selling spree for the most of 2022, it was DIIs who supported the market and absorbed the selling. Hence, analysts say if DIIs are short currently, they would be covering their positions in the event of an FPI selling, which would only cushion the market.