Indices crack on FPI selling, election uncertainty

The benchmark indices witnessed a sharp selloff on Thursday amid selling by overseas investors and nervousness around the outcome of the Lok Sabha elections.

The Sensex slid 1,062 points, or 1.45 per cent, to 72,404; while the Nifty50 settled at 21,958, down 1.55 per cent, the fifth straight day of decline. Broader indices Nifty Midcap 100 and Nifty Smallcap 100 declined 1.85 per cent, and 1.83 per cent, respectively.

Cash market volumes on the NSE stood at ₹1.02-lakh crore even as the advance decline ratio fell sharply to 0.17:1, the lowest since March 13. Volatility index India VIX spiked about 7 per cent to above 18 levels.

L&T was the top Nifty loser, shedding over 6 per cent. Asian Paints, ONGC, Coal India and BPCL slid over 4 per cent each. Barring Auto, all other sectors ended in red with Oil & Gas, Metals, Realty, Pharma & Financials declining between 2-3 per cent.

FPI selling

“Sustained FPI selling and the fear of a not-so-favourable election outcome have dented market sentiments. With voter turnout ratio (65.68 per cent) slightly lower than 2019 for the same seats (except Assam), investors have turned nervous about BJP’s expected seat count. We expect this volatility to continue in the near term in the absence of any major positive trigger,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

Foreign portfolio investors continued their selling spree, offloading shares worth nearly ₹7,000 crore, while domestic investors bought shares worth ₹5,642 crore, provisional data showed.

Global indices

Apart from the high US bond yields and the uncertainty around elections, the outperformance of the Chinese and Hong Kong markets also contributed to FPI selling. During the last one month Nifty has shed 3.5 per cent, while the Shanghai Composite and Hang Seng are up 4.2 per cent and 8.2 per cent.

“Chinese and Hong Kong markets are cheap with PEs around 10 while India is expensive with double the PE of these markets. So long as their outperformance continues, FPIs are likely to sell,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

On the global front, cautiousness ahead of Bank of England’s policy statement and hawkish statements from a few Fed officials have kept markets on the edge. Last week, the Fed kept rates steady while hinting that rates could remain higher for longer.

Global shares were mostly lower on Thursday after US market’s pause stretched into a second day and as Chinese stocks rose after China reported better-than-expected trade figures for April. Hang Seng and Shanghai Composite were the gainers among Asian indices. China reported that its exports rose 1.5 per cent in April from a year earlier, while imports jumped 8.4 per cent. The renewed growth suggests a stronger recovery in demand than earlier data had suggested.

Nifty has a crucial support around 21,750 levels for the short term and faces immediate resistance is at 22,100 levels. “A long negative candle was formed on the daily chart, which is reflecting a sharp downside momentum in the market. Having broken decisively below the immediate support of 22,300 levels on Thursday, Nifty is expected to slide down further in the short term,” said Nagaraj Shetti, Senior Technical Research Analyst, HDFC Securities.

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