Benchmarks likely to open positive

KS Badri Narayanan Chennai | Updated on October 21, 2021

Institutions selling to keep market under pressure

Indian markets are expected to open flat-to-positive on Thursday after witnessing a steep fall in the last couple of days. Mid-cap and small-cap stocks that faced severe selling pressure from institutions will continue to remain under pressure.

Analysts expect institutions both foreign and domestic will continue their selling, as they preferred to hold on to cash at current valuations. While DIIs sold shares worth over ₹6,400 crore so far this month, foreign portfolio investors offloaded shares worth ₹4.353 crore.

Global advisory firm UBS has said the Indian market has turned unattractive due to extremely expensive valuations relative to the ASEAN countries. The brokerage has an ‘underweight’ stance on India along with Taiwan and Australia (just downgraded from neutral).

SGX Nifty at 18,356 indicates a gap up opening of 40 points, as Nifty futures on Wednesday closed at least 18,316. Volatility index rising above 18 indicates the underlying nervousness of market participants.

Asian markets are mixed in early opening on Thursday with equities in Japan, China and New Zealand are down even as Australia, Korea and Taiwan eke out marginal gains. Overnight, US stocks too closed on mixed colours.

“India, like Taiwan, looks very poor on our scorecard framework. The relative valuation of India to ASEAN, two areas with similar growth dynamics and occasional perceived macro vulnerabilities, looks too wide to justify. We note that both in India and Taiwan, retail investors have played an outside role, which while difficult to predict in terms of reversing, creates an additional potential headwind if this demand unwinds,” UBS said.

According to Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services, markets are likely to continue witnessing volatility given weak global cues, ongoing earnings season and overstretched valuations. Given the sharp rally in the market, many stocks are priced to perfection, leaving very little room for any king of disappointment. Thus, any variance in result expectation can lead to sharp swing on either side.

“Mid- and small- cap breadth has been weak for the last 2 sessions — however, strong Retail sentiment prevails and is reflected in net long futures positioning for Retail segment rising to a life time high of 10.5 lakh contracts,” said S Hariharan, Head – Sales Trading, Emkay Global Financial Services.

Published on October 21, 2021

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