Foreign portfolio investors are ripping up their bearish playbooks. The benchmark NSE Nifty index surged 10.3% across seven trading sessions, propelled by aggressive foreign equity buying and an abrupt capitulation by institutional short-sellers. The squeeze was immediate. FPI short bets plunged to 75% as offshore desks scrambled to cover derivative positions, transforming what began as a modest rebound into a relentless charge across Dalal Street.
And the reversal hit the currency market almost instantly. Heavy foreign capital inflows lifted the Indian rupee, providing immediate relief after weeks of steady selling pressure. Institutional desks had spent weeks stacking directional downside hedges. That thesis fractured. When overseas desks stepped up outright cash-market equity purchases, the resulting short squeeze forced algorithmic and discretionary traders to buy back index futures contracts in size.
Derivatives positioning reveals the sheer speed of the institutional retreat. FPI short exposure—which had anchored bearish sentiment across the market—tumbled to 75% as global fund managers pivoted from hedging downside risks to chasing spot equity momentum. The mechanical pressure was brutal. A seven-session, 10.3% run wiped out the margin of safety for short sellers, turning trapped bearish positions into fuel for higher prices.
Yet the durability of this rebound now depends on whether offshore institutions initiate aggressive net-long wagers. With derivative short books trimmed to 75% and benchmark indices already up double digits in just seven days, Dalal Street desks are watching trading flow registers to see if foreign allocators sustain net cash purchases through the upcoming settlement cycle.