Mumbai : The pullback rally seen in the last 11 sessions could propel the Nifty towards 18,000 levels as foreign portfolio investors (FPIs) cover bearish derivatives bets, as well as become net buyers in the cash segment in March and so far this month Two analysts said, while a third expects FPIs to retain their bearish bets and the market to consolidate with a negative bias. On Thursday, FPI closed 3,040 contracts while doing provisional buying. 466 crore in cash, which helped the market reduce its losses and close in the green. Till Thursday, FPIs were net sellers of 106,259 contracts, down from their record high of 194,626 contracts on March 20.
This short covering of 88,367 contracts was the force behind the market’s 4.6% rally with buying from a low of 16,828 to 17,599. 12,114 crore by domestic institutional investors. FPI bought only value shares 651 crores in this period.
Analysts expect short covering to continue, which will push the market higher. “The pullback rally has more steam as we expect FPIs to cover their Nifty and Bank Nifty futures positions after the MPC pause,” said Shrikant Chauhan, head of equity research (retail), Kotak Securities Ltd. from a low of 16,828 through 17,500, but now the MPC’s action could induce a rally in interest rate sensitivity, which could also result in more short-covering by FPIs.
The MPC surprised investors by keeping the repo rate unchanged, but added that its action should not be interpreted as withdrawing the accommodative stance as the rate cycle peaked.
Short covering refers to buying back what was sold as the market starts to move up instead of down. Short covering provides more strength to any pullback.
IndiaCharts founder Rohit Srivastava said post-MPC, the 10-year bond yield has broken the nine-month trend line of 7.3%, indicating that markets are pricing in lower rates for now. “Covering FPI will aid the market in testing 18,100, which is a 61.8% retracement of the fall from the record high of 18,887.6 on 1 December to 16,828 on 20 March.
However, UR Bhat, founder of Alphaniti Fintech, which advises foreign investors, expects FPIs to hold their short positions as a hedge against negative global news flows.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.