The net FII short positioning in Nifty futures has risen sharply this year and now stands at an extreme. In the chart, we show how Nifty has historically responded to such extreme positioning from the FII.

Insight: Over the last two years, FIIs net positions on index futures have oscillated between +1,23,000 contracts and -1,42,700 contracts. We have observed that, whenever the positioning reaches an extreme range, it marks the top and bottom of the Nifty index. At present, the positioning has reached the upper range of the lower extreme zone, indicating that FIIs have turned extremely bearish on Nifty at present. Such an extreme short build-up has historically been followed by a reversal in the trend of Nifty from down to up.

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