Bears destroy ₹8.75 trillion of investor wealth

Foreign investors dumped local stocks for the fourth day in a row on Friday, sending the major Nifty 50 and Sensex indices to their biggest weekly decline in 30 months. This, and heavy selling by retail customers, caused investor wealth to plummet ₹8.75 trillion in one day.

Indian markets were part of an ongoing sell-off by emerging market FPIs (foreign portfolio investors) in favor of low-risk US bonds, in the face of rising bond yields and a stronger dollar.

The Nifty and Sensex fell 1.5% each to 23,587.5 and 78,041.59 points on Friday as FPIs sold net shares worth a provisional amount. ₹3,597.82 crore, which is the net purchase of ₹1,374.37 crore by domestic institutional investors (DIIs).

The rupee also tested a new low on Friday before recovering to close higher following the Reserve Bank of India’s intervention.

With Friday’s fall, both the Nifty and Sensex have fallen below their crucial 200-day simple moving averages (SMA), underscoring the bearish trend amid rising yields.

The 200-day SMA measures the average levels at which the Nifty and Sensex have traded over the last 200 days. The 200 SMA for Nifty is at 23,834 and for the Sensex at 78,320.76, per Bloomberg.

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At its final policy meeting for the year on Tuesday and Wednesday, the US Federal Open Markets Committee (FOMC) forecast two interest rate cuts next year, down from four previously, against the backdrop of rising inflation expectations and deteriorating investor sentiment globally.

Analysts expect the weakness to continue as small-cap and mid-cap stocks (smids) could fall more than large-cap stocks, which had lost more from the market’s September high until Friday.

The Nifty Midcap 150, which closed down 2.41% at 21,050.6 points on Friday, was 6.5% below the record high of 22,515.4 points hit on September 25.

The Nifty Smallcap 250, which closed 2.01% lower at 17,693.65 on Friday, was just 5.3% below its high of 18,688.30 on September 24.

In contrast, the Nifty had a correction of 10.2% from Friday below the record high of 26,277.35 on September 27.

“The bearishness has been imported,” said Shrikant Chouhan, head of equity research at Kotak Securities.

He added that passive selling is taking place through foreign ETFs (exchange traded funds), leading to an overall decline.

“We will have to wait for more clarity next month when (US President-elect) Trump takes over the (Indian) budget on February 1, and by then the third quarter results will also be out,” Chouhan said .

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More pain likely before the market stabilizes

Institutional selling dragged the rupee to a new low of 85.10 against the US dollar on Friday. However, the rupee recovered to close down 5 paise at 85.02, probably as the RBI sold dollars through public sector banks, said Chouhan, who expects the local currency to trade between 84.90 and 85.5 in the coming month .

Even buying through rebalancing of Sensex and FTSE indices was absorbed by the markets due to the FPI selling.

Zomato Ltd, which was expected to see an estimated inflow of $513 million due to the half-yearly rebalancing of the Sensex, tumbled 2.29% to close on Friday ₹281.85 per share on BSE. Zomato will replace JSW Steel Ltd on the Sensex with 30 shares from Monday.

The International Gemmological Institute (India), which debuted on the streets with a 22% premium ( ₹510 per share) versus the issue price, which closed 7.6% below the listing price, underscoring the selling pressure.

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“Given that large caps have fallen more than smids, there could be more pain in the market before things start to stabilize,” said Swarup Mohanty, vice chairman and CEO of Mirae Asset Investment Managers (India).

Mohanty added that the markets look “reasonably” valued and could be used to accumulate quality stocks this time. He favors large private banks and select consumer stocks with a significant rural presence as he believes the recovery in rural demand will offset the slowdown in urban growth.

Reliance Industries Ltd, which hit a 52-week low of ₹1,201.5 per share on Friday on account of the selling, HDFC Bank Ltd, Axis Bank, Tata Consultancy Services Ltd (TCS) and Larsen & Toubro Ltd (L&T) contributed two-fifths to the Nifty’s decline of 364.20 points on Friday .

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