The Sensex and the Nifty have rallied by 8 per cent in just two trading sessions, but there may still be headroom for an up-move. Derivative data of foreign portfolio investors (FPIs) shows their short positions are far from covered, which could propel the rally some more.

BusinessLine had earelier reported that FPIs held 1.2 lakh contracts of net short position in the futures segment on the NSE. This fell to around 64,000 contracts after last Friday’s rally, which saw the indices gain 5.32 per cent. After Monday’s further rally, the FPIs still hold around 42,000 contracts of net short position, indicating there may be further sharp surges.

The Sensex rose 1,075 points or 2.83 per cent at 39,090. The Nifty index was up 326 points or 2.92 per cent at 11,600. Monday’s gains were primarily due to FPI buying in the cash segment for the first time in weeks.

“FPIs will cut most of their short contracts by Thursday, and their short covering will spur the rally,” said Rohit Srivastava, founder and chief strategist, IndiaCharts.

A gap-up opening of the key indices for two consecutive sessions forced FPIs to return. Provisional data showed that FPIs were net buyers of stocks worth ₹2,684 crore. Monday was the first day in weeks that FPIs were net buyers of stocks, brokers said. On Friday, FPIs bought stocks worth only ₹35 crore. Domestic institutional investors bought stocks worth ₹291 crore on Monday, following up on Friday when they were net buyers of stocks worth ₹3,000 crore.