Of the total FPI AUM of around $ 652 billion financial services account for $213 billion and IT accounts for $ 64 billion. It is important to note that stock prices in these segments are weak due to FPI selling and not due to any fundamental factors
New Delhi:
In the short-term, market sentiment remains cautious with investors closely monitoring developments in West Asia, upcoming corporate earnings, and key economic data, including domestic PMI figures to be announced, says Vinod Nair, Head of Research at Geojit Financial Services.
Ongoing unrest in West Asia and concerns over the potential impacts of higher interest rates on future economic growth have resulted in a decline in investor confidence, he said.
FIIs selling is affecting the domestic market invariably to heavy buying by DIIs.
Domestic indices have displayed some recovery in the last trading day of the week, due to favourable US Q3 GDP growth and moderating US inflation leading to moderation in bond yield.
Decent Q2 results in India, which were in line with optimistic estimates, may also support the market’s rebound.
However, the volatility of the global market is expected to delay the recovery trend of the domestic market, since the global market is focused on the risk of further slowdown of the global economy due to elevated interest rate and geo-political tension, he said.
Amid the ongoing market consolidation, sectors such as FMCG, consumption, fertilizers, and core segments like infrastructure, housing, are expected to present potential growth opportunities.
Contributing factors include the mitigation of risks associated with raw material costs and a stable long-term demand outlook from external sectors, which may specifically support sectors like Chemical and Pharma in the medium-term, he added.
Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services said while US Fed’s rate decision on Wednesday will be a key event, investors would also await BOJ’s meeting outcome on Monday amid high global bond yield. We expect the market to continue with its volatile move going forward ahead of key economic events and ongoing earning season.
FPI selling has impacted financial services, IT segment more than others
FPI selling continues unabated impacting financial services and IT segment more than others,said Vijayakumar.
In October, FPIs have sold equity for Rs 20356 crore. The selling through exchanges has been higher at Rs 25575 crores, he said.
FPIs were sellers in sectors like financials, power, FMCG and IT.
Of the total FPI AUM of around $ 652 billion financial services account for $213 billion and IT accounts for $ 64 billion. It is important to note that stock prices in these segments are weak due to FPI selling and not due to any fundamental factors, he added.
The primary reason for the sustained selling is the sharp spike in US bond yields which took the 10-year yield to a 17-year high of 5 per cent. The yield has now declined to 4.84 per cent. With such high bond yields it is rational for FPIs to take out some money, he said.
The Israel-Hamas conflict in West Asia and the uncertainty surrounding the conflict has added to negative sentiments in the market, he added.
An important feature of FPI investment is the increasing inflows into the debt market.
FPI selling has impacted the financial services and IT segment more than others. The reason is that these two segments account for the major part of FPI’s AUM ( Assets Under Management).
After six continuous days of losses triggered by the elevated bond yields in the US and tensions in West Asia, the market appears to be oversold, said Vijayakumar.
Shorting in the FPI overweight segments like banking and IT have contributed significantly to the sharp market correction, he said.
The US economy’s resilience is surprising. The Q3 GDP growth at 4.9 per cent means the Fed will continue to be hawkish and the likely ‘higher for longer’ interest rate regime is negative from the stock market perspective, he added.
On the positive side, valuations in India, which were high, have now turned fair and in sectors like banking valuations are attractive. This is the time for cherry picking for long-term investors.
History tells us that corrections triggered by geopolitical events were opportunities to buy, he added.
IANS