Following the Pahalgam attack, retail investors and HNIs have turned net bearish on Nifty and Bank Nifty index futures for the first time in over six months. Experts, however, believe this move reflects caution after a market rally, not panic selling.

Retail and HNI Investors Turn Bearish on Index Futures After Kashmir Attack

Sudden Bearish Shift Follows Pahalgam Incident

Retail investors and high-net-worth individuals (HNIs) have shifted to a net bearish stance on Nifty and Bank Nifty index futures for the first time in more than six months. This move comes in the wake of a terrorist attack in Pahalgam, Kashmir, which resulted in the tragic loss of 26 Indian lives and one foreign national, intensifying geopolitical tensions in the region.

Pattern Break After Sustained Bullishness

Historically, retail and HNI investors have played a significant role in stabilizing the market during periods of foreign portfolio investor (FPI) outflows. As of Friday, these investors reported cumulative net short positions totaling 20,871 contracts across Nifty and Bank Nifty futures. This marks their first net bearish position since October of last year, which coincided with a global correction driven by surging US bond yields and a strengthening dollar. Earlier this March, retail and HNI investors held a record net long position of 148,914 contracts.

Market Rebound and Rising Caution

The bearish pivot follows an impressive 11.5% rebound in the Nifty, which surged from a 10-month low earlier this month. This recovery, coming on the heels of the Pahalgam attack, has led to questions about whether the shift indicates routine caution after a rapid rally or the onset of geopolitical anxiety in the markets.

Most seasoned market observers, however, interpret the move as a prudent response rather than a sign of panic. According to an experienced professional who wished to remain anonymous, there may be a short-term reaction if geopolitical tensions escalate, but current market behavior does not suggest widespread fear.

Sentiment Trends and Historical Context

The Nifty 50 experienced a sharp decline of 17% from its record high of 26,277.35 in September last year to a 10-month low of 21,743.65 in early April. This was quickly followed by an 11.5% rebound over just ten trading sessions, with the index closing at 24,246.70 ahead of the bearish shift.

Market patterns show that retail and HNI investors often turn bearish after strong rallies and typically return as buyers when corrections occur. This cyclical behavior aligns with the recent pattern witnessed post-Pahalgam attack.

Contrasting Investor Positions

While retail and HNI investors have moved to net short positions, domestic institutional investors (DIIs) remain net long, holding 67,812 contracts. In contrast, FPIs and proprietary traders are also net short, with 24,840 and 22,101 contracts respectively.

Index futures are widely used for hedging against volatility and for speculative purposes, especially during periods of heightened market uncertainty.

Market Activity Amid Geopolitical Risks

Between October and April 24, FPIs have sold ₹2.97 trillion in the cash market, while DIIs have purchased ₹3.93 trillion worth of equities, effectively offsetting the outflows. The recent shift in sentiment among retail and HNI investors is being closely monitored, but experts emphasize that current market action is more reflective of short-term caution than a harbinger of a major sell-off.