The Indian stock market faced a turbulent week, with the Nifty 50 logging its most significant weekly fall in more than two years. Amid rising geopolitical tensions and economic uncertainties, the market witnessed aggressive selling, especially by FIIs, while retail investors surprisingly turned bullish after over a month of caution.
Last week’s sell-off was driven by two major global events. First, the escalating conflict between Israel and Iran raised concerns about further destabilization in the Middle East, causing ripples across global markets.
The second factor was China’s recent stimulus measures aimed at reviving its sagging economy, which, while positive in intent, triggered worries about the effectiveness of Beijing’s economic management. As a result, the Nifty 50 index tumbled 4.3%, closing at 25,015 by the end of the week—its steepest decline since the onset of the pandemic.
The BSE Sensex wasn’t spared either, with the index dropping 4.5%, closing the week at 81,688. Both indices had hit record highs in late September, with the Nifty peaking at 26,277 and the Sensex touching 85,978. But the market’s swift reversal underscored how vulnerable it is to global pressures.
FII and DII Activity
Amid the sharp decline in equities, FIIs turned aggressive net sellers in the Futures and Options (F&O) market. Data from the National Stock Exchange (NSE) revealed that FIIs offloaded 79,868 contracts of index futures on Friday alone, following a massive sell-off of 155,282 contracts the previous day.
This selling spree continued in Nifty futures, where FIIs dumped 62,866 contracts, amounting to sales worth Rs 3,976 crore. They also sold 15,328 contracts of Bank Nifty futures and 669 contracts of MidCap Nifty futures, indicating broad-based bearish sentiment across major indices.
The FII long-short ratio in index futures—an indicator of market sentiment—fell dramatically. The ratio dropped to 1.4:1, down from a high of 4.4:1 on September 27, just before the market’s record highs. This means FIIs now have only 1.4 long positions for every short position, signaling a marked increase in bearish bets.
On the other hand, DIIs followed a similar trajectory, albeit to a lesser degree. DIIs added fresh short positions, as their long-short ratio dipped slightly from 0.6 to 0.56. This suggests that DIIs, while not as aggressively bearish as FIIs, have begun to hedge their positions as uncertainty looms over global and domestic markets.
Retail Investors Turn Bullish
In a surprising move, retail investors bucked the bearish trend last week, turning net bullish for the first time since August 27. The retail long-short ratio in index futures jumped to 1.1:1, implying that retail traders now hold more long positions than short ones. This shift in sentiment marks a notable change after weeks of cautious trading, where retail participants largely stayed on the sidelines.
The optimism among retail investors comes as a surprise, especially in light of the global factors weighing heavily on institutional sentiment. However, technical analysts have pointed out that retail traders often turn bullish during market corrections, potentially positioning themselves for a rebound. Whether this optimism will translate into sustained buying pressure remains to be seen.
Proprietary Traders Adjust Positions
Meanwhile, proprietary traders—those who trade using their own funds rather than on behalf of clients—also adjusted their positions. The long-short ratio for proprietary traders rose from 0.54 to 0.68, indicating a slight reduction in short positions. This means proprietary traders now hold three long positions for every two short ones, reflecting cautious optimism after the market’s steep decline.
Despite this shift, analysts remain skeptical about any immediate relief rally. Om Mehra, a technical analyst at SAMCO Securities, noted that market momentum has decisively turned downward. He highlighted that while a brief relief rally could occur, it is likely to be met with selling pressure as the broader market remains under bearish control. Mehra pointed to 24,800 as the key support level for Nifty, which could provide some cushion if the index continues its decline.
Open Interest (OI) Insights
The increase in open interest in both Nifty and Bank Nifty futures last week signaled a fresh wave of bearish bets. Nifty futures OI rose by 3.4% on Friday, despite the index losing more than 1%. Similarly, Bank Nifty futures saw an even larger increase in OI, jumping by 6.5%. This uptick in OI, coupled with a decline in the premium between futures and spot prices, suggests a combination of long unwinding and fresh short build-up in these contracts.
For FIIs, open interest in Nifty futures rose by 3.8%, indicating that despite net sales, there is still significant interest in index futures. Bank Nifty, in particular, saw a 20% jump in OI, with the premium on Bank Nifty futures dropping sharply from 540 points to 409 points, suggesting the addition of new short positions.
The Put-Call Ratio (PCR) for Nifty options, expiring on October 10, stood at 0.44—a bearish indicator. Aggressive call writing was observed at strike prices of 26,000 and above, indicating that traders are anticipating resistance around these levels. Max call writing occurred at the 26,400 strike, further reinforcing expectations of a ceiling in the near term. On the put side, open interest built up at strikes of 24,000 and 23,500, indicating potential support around 24,750.
Bearish Sentiment in Bank Nifty Options
The bearish tone extended to Bank Nifty options as well, with call writing exceeding put writing by a near 2:1 ratio. Significant call writing was seen at the 52,500 and 53,000 strike prices, suggesting traders are expecting resistance around these levels. Some put writing was visible at the 50,500 strike, indicating potential support at this level.
Among individual stocks in the F&O segment, Apollo Tyres, Godrej Properties, and M&M Finance saw fresh additions on the short side. Meanwhile, Tata Chemicals witnessed some buying interest. However, seven stocks—Bandhan Bank, Birlasoft, GNFC, Granules India, Hindustan Copper, Manappuram Finance, and RBL Bank—entered the F&O ban period on Monday, restricting further speculative activity in these counters.
With the market grappling with global and domestic headwinds, this week’s trading sessions are expected to remain volatile, as investors and traders reassess their positions in light of ongoing uncertainties.
