Short Call | Correction Calling: Will DIIs bet big or bow out as FIIs exit? Nykaa, NTPC in focus

Short Call

Indian markets were riding high with domestic institutional investors (DIIs) propping up the rally amid headwinds like high inflation, recession jitters, rising interest rates, and geopolitical flare-ups. Yet, the question lingered: what would finally break the camel’s back? It seems we have our answer.

After the November 13 sell-off, the Nifty 50 has slipped over 10% from its September peak, inching into correction territory.

The steady exit of foreign portfolio investors (FPIs) has overwhelmed DII buying. The catalyst? China’s new stimulus package on September 27, redirecting FII flows from India toward China. Add to this, Donald Trump's re-election in the U.S. has further pulled capital stateside.

Weak Q2FY25 earnings growth, especially in the consumption sector, intensified the FII exodus, leading to record outflows from Indian equities over the past month and a half. Meanwhile, the surge in U.S. bond yields and a strengthening Dollar index are tightening the screws on emerging markets like India.

Nifty has now tumbled close to its 200-day moving average (200-DMA) and is heavily oversold, as per analysts. JPMorgan’s Mislav Matejka warns that, without substantial fiscal stimulus from China, emerging markets may continue to lag, especially with ongoing trade and tariff uncertainties.

Also squeezing sentiment, October's retail inflation climbed to a 14-month high of 6.21%, dimming hopes for an interest rate cut by the Reserve Bank of India. Notably, analysts and brokerages have flagged India's stretched valuations over recent months.

Saurabh Jain, Assistant VP of Retail Equities at SMC Global Securities, suggests that high valuations set high expectations, and the underwhelming earnings season has stoked investor caution.

Looking forward, the market’s next big move may hinge on Q3 earnings, with hopes that robust personal consumption, rural demand, and capex could revive interest in small-cap stocks, according to Hitesh Jain, Strategist at YES Securities.

But with DIIs on edge, the question is: will they stay spooked by global headwinds, domestic earnings, or is this correction the perfect entry point they’ve been waiting for, ready to charge forward even as FIIs watch from the sidelines?

FSN e-Commerce Ventures (Nykaa) (Rs 173.25 per share, -2.5%)

Profit jumps 66% YoY in Q2FY25

Bull case: Nykaa’s strong brand in the beauty and personal care (BPC) space, combined with its extensive product range, could drive continued customer loyalty and higher revenue growth, particularly as it expands in tier 2 and 3 cities. Additionally, as the company scales, it could see improved operational efficiencies, boosting profitability over the long term.

Bear case: Increased marketing and selling expenses could squeeze margins. Quick-commerce players are expanding their product offerings in beauty and personal care, potentially putting pressure on Nykaa’s fulfillment costs and market share. The risk of rising competition and regulatory challenges could impact future growth and profitability.

NTPC (Rs 380.45, Flat)

International brokerage Macquarie initiated coverage with an 'outperform' call.

Bull Case: The brokerage said NTPC offers an attractive mix of regulated capex and renewables exposure. The predominantly brownfield nature of its upcoming thermal capacity addition reduces execution slippage risks. Nuclear could also be a longer-term driver. The stock has had a great run over the past three years, however, the brokerage is impressed by its solid visibility going forward.

Bear Case: Any delay in execution of pipeline projects could result in downside from the estimated earnings/valuations. Fuel non-availability could affect PAFs leading to higher-thanestimated fixed cost under-recoveries impacting RoEs. This could lower regulated returns of 15.5 percent in 2025-29.

(With inputs from Neeshita and Lovisha)