Foreign fund managers are the most bearish on Indian equities in the two years since the COVID-19-led rout, as rising interest rates in the United States, a weakening rupee, and a global slowdown fuel risk-off sentiment, Economic Times reported.
The long-short ratio in index futures-a measure of the number of bullish positions versus bearish ones-of overseas investors stood at 12% on Monday, the lowest in over two years.
"A falling ratio clearly speaks about the negative market setup, but at the same time, a much lower ratio also indicates extreme pessimism, which could turn into short covering if any small positive trigger happens in the global or domestic market," said Chandan Taparia, technical analyst at Motilal Oswal Financial Services. "The outlook remains bearish, but too much negativity."
A low reading means foreign investors are bearish. The previous low was 12.4% on February 28, 2020, when concerns over the spread of COVID erupted.
FPIs reduced nearly 17,000 long contracts (bullish positions) in index futures on Monday while increasing shorts (bearish positions) by 34,000 contracts.
The ratio shows FPIs are heavily bearish in the market at 88%, and long positions are at 12%. Some analysts said extreme readings in the ratio could be an indicator of a short-term bounceback.
When the ratio dropped to 16.9% on May 12, the market bounced back soon. Within two weeks, the Nifty index jumped 850 points, or 5.5%, from 15,808 to 16,661 on May 30, 2022. Since then, the market has corrected 929 points, or 5.6%, to close at 15,732 on Tuesday.
Foreign portfolio investors (FPIs) have been consistently selling Indian equities for the last nine months. Their sales since October 1, 2021, have touched Rs. 2.2 lakh crore. FPIs have sold about Rs. 1.9 lakh crore worth of Indian stocks so far this calendar year.
The Nifty has broken its May low of 15,735 and made a new low near 15,650 zones, while the Bank Nifty is still holding to the May low support of 33,000 zones.
In the last month alone, the Nifty has dropped 3.03%. Since the beginning of the year, the index has dropped approximately 1,864 points, falling to 15,774 from 17,638.