Short covering was a key driver of India’s stock-market rebound on Wednesday, according to positioning data, pointing to a lack of conviction behind the biggest rally in almost a year.
The advance, aided by a US-Iran ceasefire, coincided with a sharp drop in futures positions. While similar patterns were seen across some Asian markets, the shift in India was more pronounced. Foreign investors reduced their short positions in index futures by 32,035 contracts — the biggest one-day decline since February 3.
At the same time, open interest in near-month Nifty 50 futures posted its sharpest drop on a day of rising prices outside expiry weeks since March 16 — a signal typically interpreted by market participants as unwinding short positions.
India shows “clear signs of short covering,” said Tareck Horchani, head of sales trading prime brokerage at Maybank Securities. “From a positioning perspective, this tells us that the rally is primarily technical rather than conviction-driven.”
A more durable rally would require prices to rise alongside open interest — indicating fresh long positions — as well as stronger volumes, clearer sector leadership and confirmation from other asset classes, Horchani added.
“The rally’s got short-covering written all over it,” said Rohit Srivastava, founder and market strategist at equity-market research firm Indiacharts.com in Mumbai. It is a tactical bounce than a change of trend, he added.
Indian stocks fell Thursday afternoon, in line with broader Asian declines, as doubts grew over the US-Iran truce. Foreign outflows have persisted in cash equities, with investors selling for a record 23 straight sessions through April 7, taking total withdrawals to $17.8 billion over the period.
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