On Wednesday, India's key stock market indices recorded gains for the second consecutive day, only to see these gains diminish due to persistent selling by foreign portfolio investors (FPIs). The positive momentum sparked by the Reserve Bank of India's (RBI) indications of a potential rate cut was ultimately overshadowed by global economic concerns and the outflow of FPI investments.
Benchmark indices slip back
The BSE Sensex, a 30-share index, concluded the day down 167.71 points, equivalent to a decline of 0.21%, settling at 81,467.1. Meanwhile, the NSE Nifty index dropped 31.20 points, or 0.12%, finishing at 24,981.95. Earlier in the day, it had reached a peak of 25,234.05, up by 220.9 points, reflecting a brief period of optimism.
RBI's influence on market sentiment
The markets experienced a downturn during intraday trading following the RBI's announcement regarding its upcoming monetary policy. The committee decided to maintain the repo rate at 6.5% but shifted its stance to a neutral position, signalling the possibility of its first rate cut in four years. This decision, although positive for economic growth, did not suffice to counter the selling pressure from FPIs.
Impact of FPI selling on market confidence
FPIs have been active sellers in the market, offloading shares worth approximately ₹4,563 crore. This selling trend is primarily attributed to escalating tensions in West Asia and an uncertain economic outlook from China. Furthermore, worries regarding stagnating corporate earnings for the quarter ending in September have also contributed to the negative sentiment among investors.
Earnings growth projections
A recent analysis from Motilal Oswal Financial Services predicts a modest growth of only 2% for Nifty earnings in the September quarter, marking the slowest growth in 17 quarters. This has raised concerns regarding the sustainability of market rallies and prompted many to reconsider their strategies for buying shares online.
Global factors influencing domestic markets
Recent U.S. employment data has also played a significant role in shaping market dynamics. The nonfarm payrolls saw an increase of 254,000, the highest in six months, while the unemployment rate dropped to 4.1%. Concurrently, hourly wages have risen, leading to a 0.7% uptick in the 10-year U.S. bond yield, which is now trading at 4.04%. Such developments have heightened anxiety over potential future rate cuts by the U.S. Federal Reserve.
Geopolitical concerns affect investor sentiment
Geopolitical uncertainties and China's efforts to stimulate its economy continue to keep investors wary. "The first quarter was lacklustre, and expectations for the second quarter are not particularly high," noted Ambareesh Baliga, an independent equity analyst. He emphasised that retail investors, particularly those holding momentum stocks like those in the railway and defence sectors, are facing significant losses.
Navigating the earnings season
Looking ahead, the upcoming earnings season, along with macroeconomic data from the U.S., will be critical in determining market trends. While the market breadth appeared strong—with 2,654 stocks advancing against 1,317 declining—over half of the Sensex stocks ended lower. Notably, Reliance Industries and ITC were significant contributors to the Sensex's decline, falling by 1.6% and 3.17%, respectively.
Strategy for investors
Market analysts suggest that participants remain cautious as they navigate this corrective phase. "The Nifty has struggled to breach the resistance levels of 25,150-25,300. A drop below the recent low of around 24,700 could signal further declines," stated Ajit Mishra, SVP of research at Religare Broking. He advised investors to adopt hedging strategies during this volatile period and consider opportunities to buy shares online when favourable conditions arise.
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