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It's Oktoberfest! Buying binge on cards for the market, trust 10-year trend

Analysts say the Indian equity benchmarks, which have outperformed their global peers, so far, this year will likely continue the trend due to consistent domestic flows and better economic performance

NOIDA / October 09, 2022 / 09:13 AM IST
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October is a month of celebrations that sees big-ticket purchases—from homes to vehicles—as discounts are on offer to coincide with the festival season.

And, the data for the last 10 years shows that the festivities rub on to the market as well, with equity benchmarks the Sensex and the Nifty closing in the green eight out of ten times.

The years 2018 and 2012 have been the only exceptions, with the indices falling 5 percent and 1.5 percent, respectively. On average, indices have delivered a 2.25 percent return in October in the last 10 years.

Analysts believe indices, which have outperformed their global peers, so far, this year by a wide margin, will likely continue the trend, thanks to consistent domestic flows and better economic performance.

"Even though there are global challenges for equity markets, India's outperformance is likely to continue,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Who is afraid of FIIs

A significant trend in the market is the dominance of domestic institutional investors (DIIs) and retail investors over foreign institutional investors (FII).

Until August, the inflow in equity mutual funds has been at an average Rs 16,000 crore a month, Amfi data show. This does not include flows to hybrid or index ETFs, which, if included, will take the number higher.

During the same period, FIIs have withdrawn an average Rs 20,145 crore a month, data available with NSDL shows.

Also read: Top 10 trading ideas for next 3-4 weeks as market melts in bear hug

“If this kind of dominance of DIIs and retail investors can be sustained, FIIs will have to slow down their selling even in the context of rising dollar and bond yields in the US. Re-entry for FIIs will be expensive since DIIs and retail will not easily sell back the stocks which FIIs have sold,” Vijayakumar said.

sensex-returns-in-october

Resilient economy

Another factor that has worked for the domestic market is the relative strength of the Indian economy.

The International Monetary Fund (IMF) expects India to clock a 7.4 percent growth in 2022 despite “less favourable external conditions and more rapid policy tightening”. This is the highest among all major economies.

In contrast, North American and European economies are staring at a recession. European countries are also facing an unprecedented energy crisis due to the Russia-Ukraine war and the sanctions slapped on Moscow, hence are likely to be severely affected.

Also read: ONGC leads oil stocks on a joyride as crude prices rebound, India lowers levy

This improves the outlook of India further as investments tend to flow where growth is.

In the current year, the Nifty has delivered a negative 3.5 percent, so far. In comparison, S&P500 is down 25 percent, Nasdaq100 34 percent, CAC 20 percent, FTSE 100 8 percent and DAX 24 percent.

On October 3, the index, however, started the month with selling in blue-chip stocks. At 12.30 pm, it was trading near 17,000 after heavy buying in the previous session.

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“We feel Nifty could extend the rebound to the 17,400-17,600 zone if it manages to surpass the crucial hurdle at 17,200 else profit-taking would resume,” said Ajit Mishra, VP- Research, Religare Broking, in his near-term projection. “On the downside, 16,650-16,800 would continue to act as a cushion.”

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Shubham Raj is a journalist with over five years of experience covering capital markets. His last stint was with The Economic Times where he wrote on daily happenings in stock markets and led IPO reportage. He also wrote on mutual funds and cryptocurrencies.
first published: Oct 3, 2022 01:28 pm