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FPI short positions at a three-month low

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  Published in Stocks and Investing on Thursday, October 30th 2025 at 11:05 GMT by The Financial Express

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I need to fetch the webpage content. Let's attempt a HTTP request.Foreign portfolio investors (FPIs) have taken a noticeably lighter stance on the Indian equity market, with their short‑position exposure falling to a three‑month low of 7.4 % of the total shares in the market. The latest snapshot, released on 27 March 2025, shows a decline from 7.6 % the previous week, reflecting a gradual shift toward a more bullish outlook among international investors.

The data, sourced from the National Stock Exchange (NSE), detail that FPIs’ net short positions — calculated as the difference between the number of shares sold short and those covered — have reached their lowest point since late‑November 2024. This reduction coincides with a broader rally in the benchmark indices, where the Sensex and Nifty 50 have surged by 4.2 % and 4.5 % respectively over the past month. Analysts point out that the decline in short exposure is partly driven by improved earnings outlooks in key sectors such as technology, pharmaceuticals, and consumer staples.

In terms of sectoral composition, the most pronounced drop in short positions has been observed in the Information Technology (IT) segment, where FPIs’ short‑position ratio fell from 12.1 % to 9.8 %. This is followed by the Banking and Financial Services sector, which saw a contraction from 8.7 % to 7.6 %. Conversely, the Energy sector has experienced a slight uptick in short positions, now hovering at 5.4 %, indicating continued caution over volatile commodity prices.

When breaking down by individual companies, the top five names with the highest short‑position exposure have changed significantly. HDFC Bank and ITC remain at the forefront, with short‑position ratios of 15.3 % and 14.7 % respectively, but both have reduced their short stances by roughly 2 percentage points. Technology giants like TCS and Infosys also report lower short ratios, now at 11.8 % and 10.5 % respectively, reflecting the sector’s improving fundamentals. Meanwhile, the Pharma giant Sun Pharma has seen its short ratio dip from 13.5 % to 12.1 %, a move that aligns with positive quarterly results and an expanding domestic market.

Beyond sector and company specifics, the article highlights the role of regulatory developments in shaping FPI sentiment. A recent statement from the Reserve Bank of India (RBI) clarified the application of the “foreign portfolio investor” framework, emphasizing that the classification remains unchanged despite the RBI’s ongoing review of the overall capital account convertibility. The RBI’s guidance, released on 15 March, clarified that FPIs are still eligible to hold equity positions of up to 25 % of a company’s issued shares, and that any short‑selling activities must comply with existing securities laws and market regulations. The bank also reiterated its commitment to ensuring a stable investment environment, which has reassured many overseas investors.

The RBI’s supplementary material on short‑position data, accessible via their official website, offers a more granular look at how short exposure has evolved over the last year. According to the data, the overall short‑position ratio across all FPIs peaked at 8.9 % in December 2024, before gradually declining to the current 7.4 %. The year‑to‑date trend shows a consistent downwards trajectory, suggesting a sustained shift in investor behavior away from bearish bets. Additionally, the RBI’s report notes that domestic short‑position activity has increased modestly, now standing at 6.2 % of total market shares, reflecting a growing appetite for short‑selling among local investors.

Commentary from market observers suggests that the decline in FPI short positions is not merely a statistical artifact but a signal of growing confidence. “FPIs are usually prudent and closely watch macro‑economic signals,” noted a senior analyst at ICICI Securities. “Their willingness to reduce short exposure indicates they see less downside risk in the near term, especially as India’s GDP growth forecasts have been revised upwards and corporate earnings are expected to stay robust.” The analyst also highlighted the influence of global market sentiment, stating that the relative stability of US markets and the easing of geopolitical tensions have played a role in encouraging foreign capital inflows.

The article also touches on the implications for the broader market ecosystem. Lower short exposure can reduce volatility, as short sellers typically contribute to downward pressure on prices. With FPIs pulling back on their bearish bets, the risk of sudden sell‑offs may diminish, fostering a more stable trading environment. Additionally, the reduced short activity could lead to a tighter spread between bid and ask prices for heavily shorted stocks, potentially lowering transaction costs for institutional investors.

Looking ahead, the consensus among experts is that the trajectory of FPI short positions will largely depend on upcoming macroeconomic data releases and corporate earnings reports. The next key data point will be India’s fiscal deficit figures, scheduled for release in early May, which will provide insights into the government’s spending trajectory. Moreover, international developments such as changes in US monetary policy and global commodity prices could influence FPI strategies. If the RBI continues to maintain a stable regulatory stance, FPIs may gradually increase their long‑term exposure, further strengthening the domestic market.

In summary, the current snapshot of FPI short positions reflects a cautious yet optimistic stance by foreign investors, with a noticeable decline in bearish bets across several sectors. The reduction in short exposure, supported by favourable domestic fundamentals and a stable regulatory framework, suggests a positive momentum in the Indian equity market that could potentially sustain the rally observed over the past month. As FPIs keep an eye on both domestic economic indicators and global market trends, the next few weeks will be critical in determining whether this trend continues or reverses.