The stock markets in India have been seeing a downturn over nearly past two months, weighed down by subdued Q2 earnings, a rising dollar index, and persistent foreign institutional investor (FII) selling. Several segments have seen sharp declines since the peak on September 27.
Meanwhile, FII and domestic institutional investor (DII) data on November 18 indicated a slowdown in selling by FIIs, coupled with consistent buying by DIIs, which temporarily boosted investor sentiment.
FIIs net sold equities worth Rs 1,403 crore on Monday, a marked slowdown from the average daily selling of Rs 3,800 crore since the beginning of October. However, the relief was short-lived as FII selling spiked again on Tuesday, reaching Rs 3,411.73 crore.
Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, remarked: "For a more reliable trend, this momentum needs to sustain for a week or two. Meanwhile, DIIs continue to provide strong support through consistent buying. However, FII participation remains equally critical, particularly for boosting market sentiment."
FII outflows from Indian equities have also coincided with an unprecedented rally in Bitcoin. Bitcoin has more than doubled in value this year. The cryptocurrency was last trading at $92,104, after hitting an all-time high of $94,078 a day earlier.
Market experts attribute the outlook for FII flows to two pivotal factors: the policies of US President-elect Donald Trump and the Q3 earnings, which will be released from mid-January 2025. They expect Q3 to perform better than Q2, supported by a rebound in urban and rural consumption and increase in government spending.
Geopolitical uncertainties and global interest rate trends have also contributed to fluctuations in FII flows. Analysts suggest that clarity on these fronts could offer much-needed relief to the markets. Market corrected in late afternoon on Tuesday on fears of escalation in hostilities between Russia and Ukraine that could spill over to Europe.
"Any aggressive measures by Trump on tariffs or protectionism could divert global funds away from riskier assets like equities in emerging markets," said Parthiv Shah, Director of Tracom Stock Brokers Pvt Ltd. "By January 2025, we’ll have a clearer view of whether President Trump’s policies will be inflationary and how the US Federal Reserve reacts, which will significantly influence FII flows into markets like India."
Tepid Q2 earnings and muted guidance have also weighed on market sentiment. Speaking at the CNBC-TV18 Global Leadership Summit, Samir Arora, founder of Helios Capital, pointed out that FII selling was driven more by "pathetic corporate earnings" than by reallocation of funds to other regions like the US or China.
"Global investors typically allocate minimal exposure to India, often just 1 percent, compared to 60 percent in the US markets. It's unlikely they’d reduce their already small stake in India to increase US holdings further," Arora said.
Analysts said Q3 results will determine if FIIs will start buying Indian equities or not. Experts emphasised the role of domestic triggers, such as policy reforms and government initiatives, to stimulate growth. "The recovery will depend on an uptick in earnings which is likely to rebound due to the likely spurt in central and state expenditure in H2," said Vinod Nair, Head of Research, Geojit Financial Services.
At the recently-conducted CNBC-TV18 Global Leadership Summit, Raamdeo Agrawal, Chairman and Co-founder of Motilal Oswal Financial Services Ltd, expressed optimism, stating, "We need fiscal or monetary help, and it will come. Have patience and wait."
Agrawal added, "Earnings are slowing down, so there is a clear challenge for recovery. It might take six months, but earnings will eventually bounce back."
The BSE benchmark fell a massive 8,397.94 points or 9.76 per cent from its all-time high, and the Nifty has also lost 2,744.65 points or 10.44 per cent from the record peak.
Sensex hit its record peak of 85,978.25 on September 27 this year, and the NSE Nifty also reached a record 26,277.35 on the same day.
FIIs have sold shares worth Rs 1.16 lakh crore since October. High valuations of equities along with foreign investors fleeing the domestic market and weak Q2 earnings too contributed to the sharp fall in the benchmark indices.
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