FPI selling takes a toll on markets, analysts say worst over

There was a bloodbath on Indian bourses on Monday as investors got spooked due to fears of global debt crises worsening once the US Federal Reserve hikes key interest rates this week. Panic selling in the markets pushed Sensex and Nifty down by nearly 2.7 percent, the steepest fall in nearly two months ahead of the monthly derivative expiry. Sensex fell by 1545 points to close at 57491. The Nifty index was down 468 points at 17,149. Leading analysts told BusinessLine that it was actually the time to buy aggressively in the markets as the bulk of the selling was over. Monday’s market fall was led by a 4.06-per cent decline in the share price of market heavy weight Reliance Industries (RIL) after it posted bumper results last Friday by announcing nearly 40 per cent consolidated net profits year on year and more than 50 per cent rise in revenues from the previous year.

Global sell-off

The reason for the fall in index heavyweight stocks was massive selling by the foreign portfolio investors (FPIs) as they sold index futures worth ₹1,572 crore and stock futures worth ₹1,093 crore on Monday. Cash market figures were awaited. During the month, FPIs have sold ₹9,956 crore worth stock futures and ₹7,360 crore worth index futures, as per exchange data. Till last week, FPIs sold cash stocks worth ₹15,563 crore this month so far. 

”Bulk of the market selling is over and a pull back rally is in the offing. The FPI selling was purely due to global redemptions the funds are facing in anticipation of aggressive rate hikes by the Fed. But the steep fall of past few days in Sensex and Nifty and even global indices has factored in at least this week’s Fed hike and even a bearish commentary. Still markets could fall 3-5 per cent but that would make the case for buying even stronger. Nifty could trade in the broad range of 16,500 to 18,500 till around September quarter,” said Rahul Arora, CEO Institutional Equities, Nirmal Bang. Arora says there is no need to panic and markets may not even go down to 16,000. He is of the view that only overvalued stocks where FPIs had huge positions were falling but there is tremendous value in the markets now after the past few days of correction.

US Fed meet

The US Fed meets on Wednesday to decide the path for its tightening of monetary policy and may raise rates to contain inflation. Some analysts are expecting the central bank to hike rates four times from their pandemic-era lows in 2022. “In the US, the highest number of ‘Put’ options are being traded on the Chicago Board of Exchange in a year. It indicates that largely everybody is bearish in the US on equities. In India, the FPI position went into a negative zone in the index futures segment. Meaning FPIs are holding more short positions on a net basis minus the long index futures. It has happened four times in the recent past and each time this scenario shapes up, the markets reverse their course. This time seems no different with markets already having factored in an aggressive Fed rate hike,” said Rohit Srivastava, chief strategist, Indiacharts. Global crash in tech stocks has spread panic since among the leading lights Alibaba was down 57 per cent from its peak. Netflix was down 45 per cent, Nvidia lost 36 per cent, AMD by 30 per cent, Tesla 28 per cent, Amazon 27 per cent, Facebook 23 per cent, Microsoft 17 per cent, Google - Alphabet 17 per cent and Apple down 13 per cent from their peak levels. Market players have now pinned their hopes on the annual Budget announcement on February 1 for positive cues since even good corporate earnings have recently got overshadowed by the US market fall and FPI selling.

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