Domestic stock markets are expected to open on a weak note on Thursday as bulls lost the steam. Analysts expect the benchmark indices will witness a narrow movement due lack of any triggers.

SGX Nifty at 17,360 indicates that the domestic markets may fall by about 0.8 per cent in the opening session. Equities in Asia-Pacific region fell over 1 per cent in early deal on Thursday, tracking the weak US stocks that ended in negative after a volatile trade on Wednesday.

Though foreign portfolio investors remained net sellers, a strong counter-balance support by domestic funds helps domestic market remain firm, they added.

Domestic flow appears structural in nature: I-Sec

Although FPI flows started to turn negative since October 2021 in anticipation of the quantitative tightening (QT) cycle, the US FED actually started delivering jumbo rate hikes from May 2022 (one 50 bps and three 7 5bps rate hikes) along with reducing its balance sheet.

On the other hand, FPI flows into India and other emerging markets (EMs) started to turn largely positive from July 2022 with bouts of moderate selling.

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“This behaviour could be signalling that the aggressive rate hikes by the US Fed may be approaching its peak (terminal rate of 4.5-5%),” ICICI Securities said in a report.

"However, incremental sharp outflows from EMs like India could indicate that the current expectation of terminal interest rate of 4.5-5 per cent for the US will be breached on the upside going forward and remains a key risk," it cautioned.

On the other hand, domestic equity ETF AUM has risen 25x since FY16 driven by a low base and rapid growth, while equity oriented AUM of mutual funds has grown 4.5x since FY16.

"Global precedence in countries like US indicates that the exponential rise in equity ETF AUM as well as overall mutual fund AUM in India appears structural in nature," it added.

However, according to Choice International, the Indian market has outperformed the global markets over the years, supporting the idea that if foreign investors want to achieve world-beating returns, they cannot afford to ignore India.

Analysts expect the stock-specific action to continue for domestic markets during the result season.

Mitul Shah, Head of Research, Reliance Securities, said: "Investment and corporate capex are yet to pick up in a big way. Inflation continues to remain sticky in the domestic as well as the US economy despite the earnings season which started on positive note."

Stock-specific action

India's growth remains strong and expected to be one of the fastest growing economies in the world, while global recession and downgrading of growth persisted for major economies.

The country’s growth trajectory is supported by the improvement in capacity utilisation, revival in credit growth, strong corporate balance sheets, upbeat consumer and business confidence, he said.

"We expect the market to remain range-bound in the coming weeks, while stock specific action based on results and management commentary to follow," he added.

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