There was massive selling by foreign portfolio investors (FPIs) in India’s equity markets on Friday. No support for the markets was seen coming from the domestic institutional investors (DIIs), who, too, closed the day with net selling figures. The Sensex declined by 1,100 points or 1.82 percent to close at 58,840. The Nifty index fell by 350 points or 1.94 per cent at 17,530.

This is the fourth time in less than a year that the Nifty index was retreating from the 18,000 levels and hence it becomes a strong resistance on the upside, experts said. All eyes will be on next week’s US central bank meeting for interest rate hike. FPIs sold stocks worth ₹3,260 crore in the cash segment. In stock futures, FPIs sold ₹3,466 crore, while they were net buyers of index futures worth ₹837 crore. The DIIs were net sellers in cash segment for ₹36 crore and have been net sellers for ₹3,000 crore for September so far, as per stock exchange figures.

Recession fears

Recession fears in the US and the Federal Reserve’s meeting next week where the central bank is expected to hike key interest rates by 75 bps to 100 bps is weighing on the global markets. Also, the fact that Friday was the day of Quadruple Witching, when derivatives of stock index futures, stock index options, stock options, and single stock futures will expire simultaneously in the US has kept markets under pressure. It creates a domino effect as global funds try to unwind their positions in the largest derivatives market in the US in a single day. Stock markets in the US and Europe were all down between 0.5 per cent to 2 per cent. This year so far, India’s stock markets have outperformed the world. While the key equity indices in the US are down between 12 and 18 per cent, India’s Sensex and Nifty have lost less than three per cent from the high levels this year. In Europe and other Asian countries, the markets are down between 5 and 15 per cent. India’s outperformance has been due to its record tax collection figures and buying by retail investors at lower levels.

Gloomy outlook

The World Bank has given a gloomy picture of world economy and said it was heading towards a deep recession since global central banks were on a rate hike spree to combat persistent inflation. Fitch Ratings has cut India’s economic growth forecast for 2022/23 to 7 per cent from 7.8 per cent earlier. This has made investors and traders jittery and led to a surge in the Indian market volatility index (a gauge of investor sentiments) to above 20, for the first time post-June 2022.

“Investors are widely expecting an aggressive rate hike next week, with 1/3 of market respondents expecting the US Fed to do 100 bps, whereas a 75 bps hike is a given. To combat pressure on the rupee, the RBI most likely will have to do at least 50 bps rate hikes soon. The 10-year yield spiked 15 bps to 7.25 per cent in the last three days, in expectation of the same. The adverse rub-off impact of this was felt in the Indian equity market over the last three sessions including Friday. We expect the market to remain volatile in the coming weeks before more cues come from quarterly results, which begins early next month,” said Aishvarya Dadheech, Fund Manager, Ambit Asset Management.