After an unprecedented bull run, the mood in the Indian stock markets have suddenly grown sullen. While the Chinese economic stimulus package of $1.4 trillion has weaned away a lot of FII investments (of which India was a major beneficiary since Covid), the macroeconomic variables like inflation is weighing down on sentiments.
On the back of this came the news of retail inflation shooting to 6.21%, which is a 14-month high and puts paid to hopes of any interest rate cut by the RBI. The RBI’s tolerance band of inflation lies between 2% and 6%, but it always targets to achieve 4% on a sustained basis. Furthermore, the continuous slide in the value of the rupee against the dollar is also egging on the FIIs to sell.
Some support coming from DII and MF
“Two strong factors have been at play in this consolidating market. One, the relentless selling by FIIs has been favouring the bears and pulling the market down. Two, the sustained buying by DIIs has been supporting the market preventing a crash in the market. However, the market will trend in the coming days will depend on the relative strength of these two factors,” V K Vijayakumar, chief investment strategist, Geojit Financial Services told the media.
Vijayakumar also mentioned the rally in the US indices. “The sustained rally in the US markets which have taken the Dow and S&P 500 above 40,000 and 6,000 respectively is no longer a tailwind for Indian markets. In India, in contrast, worse-than-expected earnings downgrades for FY25 are weighing on stock prices favouring the bears in the near-term.”
DIIs, mutual funds struggling to match FII outflow
Prasunjit Mukherjee, CEO, Plexus Management Services told News9 that the torrent of FIIs offloading is pulling the markets down despite mutual funds and DIIs doing their bit. “SIP inflows about risen to more than Rs 25,000 but the net position would be about Rs 15,000-16,000 a month which is a significant amount. FIIs are selling in bulk. They have offloaded shares of about Rs 95,000 crore in about 6 weeks. We were told that the DIIs were readying a war chest of Rs 2 lakh crore to support the market. But I am yet to see it materialise. However, the market will definitely find support,” Mukherjee remarked. However, he mentioned that FIIs had been significant sellers over the past 1-1.5 years and DIIs have provided enough support then.
Vicious cycle of the falling rupee
Mukherjee particularly points out to the vicious cycle that the fall of the rupee has done in this regard. “There is a continuous fall in the value of the rupee. To protect the dollar value of their investment, they are taking out investments from rupee into USD, which, in turn, is creating a vicious cycle where stocks are going down and value of USD is rising,” said Mukherjee.
Portfolio reallocation to gold and silver
Prasunjit Mukherjee also points to some portfolio reallocation taking place in DIIs. “Both DIIs and FIIs are perhaps shifting some of their resources to precious metals (gold and silver). They are expecting immediate gains from this sector.”
Stock Market crash: While a large section of the retail investors are surprised at the sudden change in mood in the markets, the fall could have perhaps been sharper without MF and DII support. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
