‘Nifty could hit 18,000 level as FPIs turn upbeat’

MUMBAI : The pullback rally seen over the past 11 sessions could extend the Nifty level to 18,000 as foreign portfolio investors (FPIs) cover bearish derivative bets while simultaneously turning 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, FPIs closed out 3,040 contracts while buying a provisional 466 crore in cash, enabling the market to pare its losses and close in the green. As of Thursday, FPIs were net sellers of 106,259 contracts, down from a record short level of 194,626 contracts on 20 March.

This short covering of 88,367 contracts was the force behind the market’s 4.6% rally from a low of 16,828 to 17,599, along with buying of 12,114 crore by domestic institutional investors. FPIs purchased shares worth only 651 crore over the period.

Analysts expected the short coverings to persist, taking the market up. “The pullback rally has more steam as we expect FPIs to cover their bearish Nifty and Bank Nifty futures positions following the MPC’s pause,” said Shrikant Chouhan, head of equity research (retail), Kotak Securities Ltd. “We initially thought it would run through 17,500 from the low of 16,828, but now the MPC action could induce a rally in interest rate sensitives, 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 was not to be interpreted as the rate cycle having peaked as the withdrawal of accommodation stance was retained.

The short covering implies buying back what was sold as the market begins to move up instead of trending down. The short covering provides more strength to any pullback.

Rohit Srivastava, founder of IndiaCharts, said that post the MPC, the 10-year bond yield had broken the nine-month trendline of 7.3%, which shows that markets are pricing lower rates for now. “The FPIs covering will assist the market in testing 18,100, which is the 61.8% retracement of the fall from the record high of 18,887.6 on 1 December to 16,828 on 20 March.

However, U.R. Bhat, founder of Alphaniti Fintech, which advises foreign investors, expects FPIs to hold on to their short positions as a hedge against negative global news flows.

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