Before going any further, allow me to mention a few market participants in the Indian market who are crucial in influencing market price, viz. FIIs DIIs and Pro traders. Here is a quick description of each:
This csv file contains end-of-day (EOD) transaction data for the derivatives market. These are cumulative positions taken on stock futures and options as well as index futures and options by various market participants, including FII, DII, Pro, and
Client. The positions in index futures and options that are listed in the sheet refer to NIFTY and BANKNIFTY positions with weekly and monthly expirations. You can now extract the data as needed. First, have a glance at the sheet.
The sheet is complex and contains a lot of information. I'll explain it so that you may comprehend it better. You can ignore the stock future & stock options' data since you just want to determine the direction of the NIFTY & BANKNIFTY. If you examine closely, DII has relatively little exposure to index options, hence the value of their data is small. In addition, since clients are traders in addition to FII, DII, and Pro traders, you can disregard their statistics. The majority of them are retail traders and
they are pitiful at market analysis. But the prediction will be more accurate if you consider more facts. In any case, you'll be able to create a simpler sheet immediately. Copy the Future Index Long and Future Index Short values for DII, FII, and Pro from the downloaded sheet, then paste them into the calculation sheet as indicated in the figure below to finish preparing the page. To maintain the sheet, the calculation sheet must first be constructed.
On the preceding sheet, the Net Call is (Call Long - Call Short) and the Net Put is (Put Long - Put Short), while the Net OI is just the total amount invested (Net Call – Net Put). Once more, positive net positions suggest building up long bets, while negative positions indicate building up short positions by FII and professional traders. It is important to note right now that we cannot determine the market trend by focusing solely on one-day positions. We must monitor the build-up of positions for at least a few days. This means that you must regularly update and maintain a data sheet. Look at the next couple of steps to maintain the sheet now.
Check out the information on the master sheet first. It comprises NIFTY & BANKNIFTY closing prices as well as cumulative, expiry, 10 day, and daily positions created by various market participants on Index futures and options. The various components of the sheet will be covered later. Let's first update the spreadsheet. In
order to add a new row to the master sheet, copy the index futures and options data from the computation sheet and paste it one at a time. Because the data in the calculation sheet also contains a formula, remember to paste the data as "value" (paste special as value). To obtain the combined positions, simply add the values of DII, FII, and/or Pro traders to the index futures and index options columns.
Let's look at an example to better understand what the various values on the sheet imply. The combined index futures position as of March 3, 2023 is -80027, which means the major participants (DII, FII, and Pro) have combined a total short position in the index futures of 80,027 contracts. Similar to this, as of March 3, 2023, they had long positions totalling 93,246 contracts in index options, including all expiries. The 10 days net position represents their positions over the previous 10 days. It is derived by deducting the position of 10 days ago from the position today. The upper sheet's purple-coloured row indicates the spot that is 10 days earlier. Likewise, how daily position is determined by subtracting yesterday's position from today's cumulative position, expiry position is determined by subtracting last expiry day data from today's data.
After a significant amount of more copy, paste, addition, and subtraction activity, we have finally finished creating the master sheet. The master sheet is completed. In order to forecast the general market direction, we will now focus to the analysis of this data. Look at the daily open interest build-up for both index options and futures first. If these pieces of information indicate that long holdings have been amassing over the past few days, the market is likely to turn bullish soon. Conversely, short positions suggest that the market may decline. Yet, it provides the appearance that there is no clear direction among the major players and the indices is predicted to trade in a range-bound zone if index future shows long build-up and index option shows short build-up and vice versa.
For illustration, have a look at the open interest range from February 3rd to February 13th, 2023, on the sheet below. At that time, traders made short bets in index options while simultaneously accumulating long positions in index futures. The market should decline, according to options traders, and the market should rise, according to futures traders. Hence, throughout the course of ten trading sessions, the NIFTY index fluctuates between 17,854 and 17,771 and the BANKNIFTY index between 41,499 and 41,282.
We discussed how to identify market trends using major players' derivative and cash market data in this section of the book. Although we examined the data
separately, it is always advisable to assess market sentiment by combining both data sets. Rather than assessing the data individually, combining them provides a more complete picture of the market.
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| How to Identify Short Term Market Trend |
Foreign Institutional Investors (FII):
Institutional investors who are based outside of India and invest in the Indian stock market are known as FIIs. These investors include mutual funds, pension funds, and hedge funds. FIIs are able to significantly affect Indian markets by bringing in foreign cash. Regarding the sum of money, they are permitted to invest in Indian debt and equity markets, there are a number of rules and limitations.
Domestic Institutional Investors (DII):
Institutional investors with a presence in India, like mutual funds, insurance companies, and banks, participate in the Indian stock market as DIIs. They are prominent market participants in India and have a big say in how the market behaves. Additionally, there are rules and limitations that apply to DIIs.
Professional Traders (Pro traders):
Pro traders are people or businesses who conduct trading operations on the Indian stock market on a full-time basis. To make trading judgements, they may employ a range of trading methodologies, including as technical analysis, fundamental analysis, and quantitative analysis. Proprietary trading companies, high-frequency traders, and algorithmic traders are a few examples of professional traders.
It is worth mentioning that the FII, DII and Pro traders are the most sophisticated market participants in India. They are competent and experienced, have strong research teams, and plenty of trading capital. In essence, they make informed decisions when trading. As a result, they frequently make money from the market. The good news is that their data is publicly available and is closely monitored by market participants as it can provide insights into investor sentiment and market trends. It is generally believed that markets move in the direction that they perceive. The market will remain bullish if they establish long holdings and become bearish if they build short positions. Doesn't that sound great? What if you are aware of the positions they are developing in the marketplace? It won't be simple for you to guess the market's direction, though. Yes! You can determine the short-term trend by just following them because they hold their positions for a limited number of trading sessions much of the time. How do we find out about the positions they have taken is the following question? Exactly this is what we'll be talking about in this section.
First, download the data from the NSE website. The procedures are listed below.
1. Go to www.nseindia.com and select Daily Market Reports under RESOURCES tab as shown in the image below.
It is worth mentioning that the FII, DII and Pro traders are the most sophisticated market participants in India. They are competent and experienced, have strong research teams, and plenty of trading capital. In essence, they make informed decisions when trading. As a result, they frequently make money from the market. The good news is that their data is publicly available and is closely monitored by market participants as it can provide insights into investor sentiment and market trends. It is generally believed that markets move in the direction that they perceive. The market will remain bullish if they establish long holdings and become bearish if they build short positions. Doesn't that sound great? What if you are aware of the positions they are developing in the marketplace? It won't be simple for you to guess the market's direction, though. Yes! You can determine the short-term trend by just following them because they hold their positions for a limited number of trading sessions much of the time. How do we find out about the positions they have taken is the following question? Exactly this is what we'll be talking about in this section.
FII, DII & Pro Traders Position in Derivative Market
You need to do some research in order to understand what the major players in the market are doing. Frequent monitoring of their positions is required. Nothing is simple. Thankfully, the data is made available to us each day as the market closes by the NSE (National Stock Exchange of India). On their website, after-hours data is frequently updated. The data must be downloaded and processed in a way that you can understand. Break the information down in a way that you can grasp.First, download the data from the NSE website. The procedures are listed below.
1. Go to www.nseindia.com and select Daily Market Reports under RESOURCES tab as shown in the image below.
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| Nse India |
2. Next, select the Daily Reports category in the DERIVATIVES
area and download the Participant wise Open Interest (csv) file.
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| Derivatives |
This csv file contains end-of-day (EOD) transaction data for the derivatives market. These are cumulative positions taken on stock futures and options as well as index futures and options by various market participants, including FII, DII, Pro, and
Client. The positions in index futures and options that are listed in the sheet refer to NIFTY and BANKNIFTY positions with weekly and monthly expirations. You can now extract the data as needed. First, have a glance at the sheet.
they are pitiful at market analysis. But the prediction will be more accurate if you consider more facts. In any case, you'll be able to create a simpler sheet immediately. Copy the Future Index Long and Future Index Short values for DII, FII, and Pro from the downloaded sheet, then paste them into the calculation sheet as indicated in the figure below to finish preparing the page. To maintain the sheet, the calculation sheet must first be constructed.
The "Net" column lists the traders' net positions (DII, FII, & PRO). It is determined by deducting the Future Index Short column from the Future Index Long column. Positive net positions signify a long build-up by them, whilst negative net
positions suggest a short build-up. Positions in Index futures are determined in this manner.
Now let's compute the positions taken by the major participants in the index option market. Again, to do this, you must copy the Call Long, Put Long, Call Short, and Put Short data of FII & Pro traders from the downloaded file, then paste it on the calculation sheet.
On the preceding sheet, the Net Call is (Call Long - Call Short) and the Net Put is (Put Long - Put Short), while the Net OI is just the total amount invested (Net Call – Net Put). Once more, positive net positions suggest building up long bets, while negative positions indicate building up short positions by FII and professional traders. It is important to note right now that we cannot determine the market trend by focusing solely on one-day positions. We must monitor the build-up of positions for at least a few days. This means that you must regularly update and maintain a data sheet. Look at the next couple of steps to maintain the sheet now.
Check out the information on the master sheet first. It comprises NIFTY & BANKNIFTY closing prices as well as cumulative, expiry, 10 day, and daily positions created by various market participants on Index futures and options. The various components of the sheet will be covered later. Let's first update the spreadsheet. In
order to add a new row to the master sheet, copy the index futures and options data from the computation sheet and paste it one at a time. Because the data in the calculation sheet also contains a formula, remember to paste the data as "value" (paste special as value). To obtain the combined positions, simply add the values of DII, FII, and/or Pro traders to the index futures and index options columns.
After a significant amount of more copy, paste, addition, and subtraction activity, we have finally finished creating the master sheet. The master sheet is completed. In order to forecast the general market direction, we will now focus to the analysis of this data. Look at the daily open interest build-up for both index options and futures first. If these pieces of information indicate that long holdings have been amassing over the past few days, the market is likely to turn bullish soon. Conversely, short positions suggest that the market may decline. Yet, it provides the appearance that there is no clear direction among the major players and the indices is predicted to trade in a range-bound zone if index future shows long build-up and index option shows short build-up and vice versa.
For illustration, have a look at the open interest range from February 3rd to February 13th, 2023, on the sheet below. At that time, traders made short bets in index options while simultaneously accumulating long positions in index futures. The market should decline, according to options traders, and the market should rise, according to futures traders. Hence, throughout the course of ten trading sessions, the NIFTY index fluctuates between 17,854 and 17,771 and the BANKNIFTY index between 41,499 and 41,282.
Now consider a different illustration. According to the graphic below, from October 21st through November 1st, 2022, large long holdings on index futures as well as index options was created by FII, DII, and professional traders. As a result, the NIFTY index rose from 17,576 to 18,145 and the BANKNIFTY index rose from 40,584 to 41,290 within just six trading sessions. That is the aura of examining open interest. It gives us a more accurate picture of the market than any other tool available. Moreover, remember to have a look at the expiry and 10 days net position for the index futures and options. You will have even more clarity regarding the upcoming market trend as a result.
The above screen displays the trading activity of the major players for one day only, and we cannot gauge market sentiment based solely on one day data. In order to assess the market trend, we must observe the position build-ups for at least a few days. Therefore, we will maintain a sheet of their daily position once the data is available on the NSE website.
Take a look at the positions established by the major players from July 18th to August 17th, 2022. FII/FPIs are consistently taking long positions in the equity cash market, while DIIs are trying to take small profits. However, FII/FPI long positions are more aggressive than domestic investors' sell positions, resulting in a positive net
position figure. As a result, the Nifty has risen from 16,150 to 17,940 in the time specified. That is the allure of watching the major players consolidate their positions. Look at the table below to see the positions the major players created from 9 January 2023 to 9 February 2023. The market appeared to be falling because FII and FPIs were selling the companies they had in their portfolios. Nonetheless, DIIs were actively purchasing equities in the belief that excellent stocks were being purchased at fantastic prices, which the market generally favours. Both buying and selling pressure were present concurrently on the equities market. As a result, the index Nifty remained stable between 18,101 and 17,893 during that time. In this manner, you can forecast market trends by only examining the positions taken by the key firms.
FII, FPI & DII Position in Cash Market
As we have discussed in the earlier section, Foreign Institutional Investors (FIIs) are entities that pool money from various sources and invest it in the financial markets of another country. For example, when American hedge funds invest in the Indian stock market, they are considered FIIs. However, they have some restriction to invest in equity of Indian companies. For example:- FII are permitted to invest up to 10% of a single company's equity.
- The maximum investment limit in Indian companies is 24% of paid-up capital. If individual companies obtain shareholder approval, the maximum limit can be raised to 30%.
- The maximum investment limit in public sector banks is 20% of paid-up capital.
Foreign Portfolio Investment (FPI) is the purchase of foreign financial assets by an investor. It consists of a variety of financial assets such as fixed deposits, stocks, and mutual funds. The investors hold all of the investments in a passive manner. Foreign Portfolio Investors are investors who invest in foreign portfolios.
Foreign portfolios raise volatility. As a result, the risk is increased. The goal of investing in foreign markets is to diversify the portfolio while also earning a good return on investment. Because of the risk they are willing to take, investors expect high returns. Foreign Portfolio Investment is a popular investment option these days. Individuals, corporations, and even governments invest in foreign portfolios.
DII is an abbreviation for "domestic institutional investors." DIIs are a type of investor who undertakes to invest in financial assets and securities of the country in which they currently reside. DII investment decisions are influenced by both political and economic trends. Domestic institutional investors (DIIs), like foreign institutional investors (FIIs), can have an impact on the economy's net investment flows. There are four types of domestic institutional investors. They are: Mutual Funds, Insurance Companies, Local Pension Funds and Banking & Financial Institutions.
Let us first observe how the FII and DII cash market data appears on the NSE website. Then we'll look at data processing and interpretation.
Foreign portfolios raise volatility. As a result, the risk is increased. The goal of investing in foreign markets is to diversify the portfolio while also earning a good return on investment. Because of the risk they are willing to take, investors expect high returns. Foreign Portfolio Investment is a popular investment option these days. Individuals, corporations, and even governments invest in foreign portfolios.
DII is an abbreviation for "domestic institutional investors." DIIs are a type of investor who undertakes to invest in financial assets and securities of the country in which they currently reside. DII investment decisions are influenced by both political and economic trends. Domestic institutional investors (DIIs), like foreign institutional investors (FIIs), can have an impact on the economy's net investment flows. There are four types of domestic institutional investors. They are: Mutual Funds, Insurance Companies, Local Pension Funds and Banking & Financial Institutions.
Let us first observe how the FII and DII cash market data appears on the NSE website. Then we'll look at data processing and interpretation.
The above screen displays the trading activity of the major players for one day only, and we cannot gauge market sentiment based solely on one day data. In order to assess the market trend, we must observe the position build-ups for at least a few days. Therefore, we will maintain a sheet of their daily position once the data is available on the NSE website.
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| Cash Market |
Take a look at the positions established by the major players from July 18th to August 17th, 2022. FII/FPIs are consistently taking long positions in the equity cash market, while DIIs are trying to take small profits. However, FII/FPI long positions are more aggressive than domestic investors' sell positions, resulting in a positive net
position figure. As a result, the Nifty has risen from 16,150 to 17,940 in the time specified. That is the allure of watching the major players consolidate their positions. Look at the table below to see the positions the major players created from 9 January 2023 to 9 February 2023. The market appeared to be falling because FII and FPIs were selling the companies they had in their portfolios. Nonetheless, DIIs were actively purchasing equities in the belief that excellent stocks were being purchased at fantastic prices, which the market generally favours. Both buying and selling pressure were present concurrently on the equities market. As a result, the index Nifty remained stable between 18,101 and 17,893 during that time. In this manner, you can forecast market trends by only examining the positions taken by the key firms.
 |
| Cash Market |
We discussed how to identify market trends using major players' derivative and cash market data in this section of the book. Although we examined the data
separately, it is always advisable to assess market sentiment by combining both data sets. Rather than assessing the data individually, combining them provides a more complete picture of the market.
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