FII Shorts Peak as Nifty Enters Bear Territory, Steel Stocks Under Pressure
Overview
Foreign investors are aggressively building short positions in Nifty futures, signaling a strong bearish stance. This has pushed key sectors like consumer durables, realty, and FMCG below critical technical levels. While metals face profit-booking pressure, some sectors like PSU Banks and Auto show resilience, and potential peak fear in small caps could signal an upcoming rebound as earnings season approaches.
Stocks Mentioned
FIIs Double Down on Bearish Bets
Foreign institutional investors are doubling down on bearish bets against the Indian market. Their short positions in index futures have surged to over two lakh contracts, the highest level seen in recent months. This aggressive stance has pushed several key sectoral indices, including Nifty Consumer Durables, Realty, Media, and FMCG, below their 200-day moving averages, signaling a weakening market.
Pockets of Strength Amidst Weakness
Conversely, a select few sectors remain buoyant, trading significantly above their 200-day SMAs. Nifty PSU Bank is trading 17% higher, Nifty Metal 14% higher, and Nifty Auto 12% higher from this critical benchmark. This divergence highlights pockets of strength amidst broader weakness.
Small Caps Hint at Peak Fear
The small-cap segment may be nearing peak fear. Only 9% of the Small Cap 250 index constituents are trading above their 10-day SMAs, indicating extreme caution. With the upcoming earnings season providing a low base for potential upside surprises, this segment could offer stock-specific opportunities.
Nifty Metal Faces Profit Taking
The Nifty Metal Index, after a robust upward trend, is now showing signs of profit booking. The Relative Strength Index (RSI) has retreated from overbought territory, and the MACD is nearing a bearish signal-line crossover. The index is hovering around the Parabolic SAR mark of 11,080, a level that could be breached. Downside targets are now eyed at the 38.2% Fibonacci retracement level of 10,973, followed by 10,777.
Steel stocks were prominent laggards, while aluminium and zinc counters demonstrated relative resilience. Adani Enterprises was a significant contributor to the sector's decline. Steel producers are expected to remain under pressure, with potential for other metal segments to limit further losses.
Nifty Realty Shows Fragile Setup
The Nifty Realty Index experienced a sharp pullback this week. Its daily chart setup appears fragile, with the RSI falling below its short-term moving average and the MACD approaching a bearish crossover. A potential trendline breakdown is also in play. After five consecutive sessions of losses, hourly charts indicate deeply oversold conditions, hinting at a possible short-term bounce early next week.
Derivatives data reinforces the bearish sentiment. A significant portion of stock futures saw short additions on Friday, while near-the-money and out-of-the-money call strikes also recorded substantial short additions. This positioning suggests traders anticipate further near-term weakness.
Stock-specific weakness was evident in companies like DLF, with the index potentially heading closer to the 850 level in the near term. Caution is advised on any recoveries within the realty sector.
