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Record Bearish Bets by FPIs Signal Indian Market Turbulence
12 Jan
Summary
- FPIs boosted bearish index futures bets to a record high.
- Proprietary traders increased bearish index options positions.
- US Supreme Court verdict on Trump tariffs adds market uncertainty.
Indian markets anticipate increased volatility as foreign portfolio investors (FPIs) established a record high in bearish index futures bets last Friday. This heightened caution by FPIs, along with increased bearish positioning by proprietary traders in index options, sets the stage for a turbulent trading week. The market is closely watching the US Supreme Court's impending decision on President Donald Trump's tariffs, a verdict expected this week that could significantly influence trade dynamics with the US, India's primary export destination.
The benchmark Nifty has experienced a substantial rally from its 52-week low on April 7 last year, reaching a record high last Monday, largely driven by domestic institutional investors. However, sustained selling by FPIs has capped recent gains. Analysts attribute the FPIs' risk-averse stance to better returns in the US market and a depreciating rupee, alongside concerns over India's valuation relative to earnings. The MSCI India index has lagged significantly behind the MSCI US index in returns over the past year.
Despite the outflow pressures from FPIs, substantial inflows from retail investors via systematic investment plans (SIPs) are expected to prevent a market crash. Experts suggest a structural shift may be occurring, with consistent monthly inflows into mutual funds. However, investors are advised to moderate return expectations, anticipating a return to pre-pandemic levels rather than the exceptional gains seen in the post-COVID years. The year 2026 is projected to favor midcap outperformance in sectors like healthcare and chemicals.
