The Indian equity markets faced a challenging week, ending in the red for the third consecutive time, marking the longest weekly decline since August 2023. While a sharp rally in banking stocks provided some respite and helped the benchmark indices snap a three-day losing streak, the gains were insufficient to erase the overall weekly deficits.
On Friday, the BSE Sensex closed at 81,225, marking a gain of 218 points, or 0.3 percent. Similarly, the Nifty 50 index ended at 24,854, up 104 points, or 0.4 percent. Despite these gains, both indices declined for the week, with the Sensex dropping by 0.2 percent and the Nifty by 0.4 percent. Over the past three weeks, the Sensex has lost 4,347 points, or 5.1 percent, while the Nifty has declined by 1,325 points, also a 5.1 percent drop.
FPI Outflows Surge
A significant factor behind the market’s downturn has been the unprecedented outflows from foreign portfolio investors (FPIs). On Friday alone, FPIs sold shares worth ₹5,486 crore, while domestic institutional investors (DIIs) were net buyers, purchasing shares worth ₹5,215 crore.
As of this month, FPIs have pulled out a staggering ₹77,000 crore (approximately $9.2 billion) from Indian equities, marking the highest outflow ever recorded in a calendar month. Analysts indicate that a large portion of this selling is attributed to investors reassessing their exposure to India in favor of the Chinese market, where current valuations appear more attractive.
Global Economic Concerns
The uncertain outlook regarding potential U.S. interest rate cuts has further fueled investor apprehension. The 10-year U.S. bond yield was trading at 4.1 percent, reflecting growing skepticism over how swiftly the Federal Reserve might ease its monetary policy. Recent U.S. retail sales data for September, which exceeded forecasts with a rise of 0.4 percent (up from 0.1 percent in August), adds to concerns, suggesting the U.S. economy is not showing signs of slowing down.
Market Sentiment and Analyst Insights
Market experts are anticipating continued consolidation in the Indian markets due to mixed global cues and a lack of significant domestic triggers. “We expect consolidation to continue in markets because of mixed global cues and lack of domestic triggers. However, stock-specific action will be seen, driven by the quarterly earnings results,” commented Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
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The market breadth on Friday was mixed, with 2,014 stocks declining compared to 1,923 advancing. The performance of individual stocks was also varied, with banking stocks such as ICICI Bank, which rose by 2.5 percent, and Axis Bank, which saw a gain of 5.6 percent, being the biggest contributors to the Sensex’s gains. Conversely, Infosys shares fell by 4.6 percent, the most among Sensex and Nifty components, following a revenue growth forecast that fell short of market expectations. This drop in Infosys shares triggered a broader sell-off in the IT sector, causing the Nifty IT index to shed 1.5 percent.
Sectoral Performance
Earlier in the week, concerns about weak demand highlighted by Bajaj Auto during the festival season raised alarms about a potential slowdown in discretionary spending, leading to a sell-off in auto stocks. However, the initial set of results from private banks was largely positive, fueling expectations that the upcoming financial results would also reflect optimism. The metals sector performed better, buoyed by slightly better-than-expected growth in China’s Q3 GDP. Additionally, consecutive rate cuts by the European Central Bank supported rate-sensitive stocks.
As October progresses, the Indian equity markets remain under pressure from both domestic and international factors. The substantial FPI outflows reflect a shift in investor sentiment, raising concerns about the sustainability of the current market rally. As analysts continue to monitor the situation, attention will turn to forthcoming quarterly earnings reports, which could provide much-needed direction and stability to the beleaguered markets. Investors are advised to remain cautious and watch for signs of recovery amidst the ongoing volatility.
