Markets to stay volatile as FIIs, DIIs deepen shorts

A clear divergence is emerging in the Indian derivatives market. As of June 4, 2025, NSE data shows foreign institutional investors (FIIs) continuing to build index shorts, domestic institutions turning more defensive, and retail investors holding firm on bullish bets—creating a market balanced between caution and conviction. The Nifty is currently hovering at 24,620, up less than 4% since the year began.

FIIs remain deeply short on index futures, now holding nearly 1.3 lakh contracts short against just 26,924 long, showing a defensive stance. Even in stock futures, where they remain net long by over 15 lakh contracts, FIIs added more shorts than longs—14,100 vs. 6,534—indicating a tilt toward hedging rather than outright bullishness.

In contrast, domestic institutional investors (DIIs) have reinforced their bearish stance. Their stock futures book remains heavily short at over 42 lakh contracts, and they added nearly 31,500 fresh shorts. While still marginally net long on index futures, DIIs trimmed their exposure slightly, bringing their overall tone in line with a defensive outlook likely shaped by valuation concerns, fiscal uncertainty, or election-linked volatility.

In contrast, clients—primarily retail and high-net-worth individuals—remain the most optimistic cohort. They added more than 1 lakh net contracts across index and stock futures, pushing their total net long position to over 21 lakh. Proprietary desks also turned modestly constructive, adding over 1.1 lakh net contracts, particularly in stock futures. While not aggressively directional, their stance signals selective optimism in the near term.

Overall, the market is being held up by domestic retail and HNI sentiment, even as institutions position for risk. Unless FIIs return to a more balanced stance or DIIs pare back their shorts, any market rally may face resistance.

According to market watchers, momentum indicators remain lukewarm. The relative strength index (RSI) – a momentum indicator that measures recent price changes to predict overbought or oversold conditions--is hovering near the neutral 50 mark, indicating that the bulls are losing steam.