China stimulus, West Asia conflict slam India Street | Stock Market News

Mumbai: Investors in India’s stock markets lost ₹3.79 trillion on Monday, after the benchmarks fell the most in a day in almost two months on heavy selling by foreign portfolio investors and retail clients. 

The Nifty shrank 1.41% to 25,810.85, and the Sensex fell 1.49% to 84,299.78. This was the biggest single-day fall for the indices since 5 August, when both the benchmarks fell around 2.7% each.

Mixed global cues and overbought positions brought the markets down, with large-cap stocks in energy, banking and automotive industries leading the fall. The biggest drags on the Nifty were Reliance Industries (-74.72), ICICI Bank (-50.13), HDFC Bank (-35.64), Axis Bank (-26.44), Infosys (-24.33) and M&M (-16.72). 

These numbers are point contributors or drags based on their weighting in the Nifty. The higher the weight of a stock on Nifty, the greater it’s contribution to a rise or fall on the index.

Global cues that contributed to the slide included expectations of a possible diversion of foreign fund flows to China, rising tensions in the Middle East that can drive crude oil prices higher, and a stronger Yen.

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“There is anticipation of increased foreign portfolio flows to China, following the bazooka of a stimulus last week, which might divert some of the foreign money from markets like India that are overbought in certain pockets,” said Swarup Mohanty, vice-chairman & CEO, Mirae Asset Investment Managers (India).

As a result, the blue-chip Nifty and Sensex, which are at multi-year overbought territory, slid below the psychological 26,000 and 85,000 levels, respectively, on Monday.

To be sure, the fall was cushioned somewhat by buying of ₹6,645.80 crore by DIIs or domestic institutional investors, even as provisional data from BSE shows that foreign institutional investors (FIIs) sold ₹9,791.93 crore, the most in four months. Sale by retail clients on NSE was not available until press time.

So far this calendar year, FIIs have net invested ₹1 trillion, and DIIs have net invested ₹3.34 trillion, based on exchange and depository data as of 27 September.

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The broader markets, however, remained stable, with Nifty Smallcap 250 rising 0.06% to 18,410.7 and the Nifty Midcap 150 closing down a fifth of a percent at 22,311.95.

Looking ahead, while market veterans expect heightened volatility in the upcoming sessions, they remain structurally bullish on India.

“I believe this pullback is healthy and is playing out as we had expected post-budget (23 July), with rotation happening from overbought pockets like railway, defence manufacturing, shipyards, etc., to healthcare, private banks and to consumer discretionary names,” said Mohanty.

The fall in the benchmarks came alongside a 4.8% fall in Japan’s Nikkei 225, 2.13% fall in South Korea’s Kospi, and Taiwan’s Taiex taking a 2.6% tumble.

On the flip side, China’s CSI 300 blue chip index rose 8.48% on Monday, the most in 16 years following a 20 basis point rate cut and a $284.43-billion fiscal stimulus last week. Chinese stock markets will be shut for a week from Tuesday for Golden Week holiday.

Heavyweights in overbought territory

That Indian bellwethers are in technically overbought territory was evident in the Nifty’s monthly relative strength index (RSI) hitting a 17-year high of 83.92 on Friday. This was the highest since 1 October 2017 when it hit 85.77.

RSI, which gauges overbought or oversold levels for stocks and indices, oscillates between 0 and 100, with a level above 70 indicating overbought and below 30 signalling an oversold zone.

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“Post Monday’s pullback, the RSI came off to 83.19, which is still at multi-year highs,” said Jay Vora, market analyst at IndiaCharts.

Vora said so long as Nifty doesn’t break below the 20-day simple moving average of 25,479, it could rise to new highs after pulling back, which could take the RSI even higher.

Derivatives signal volatility ahead

Nifty futures contract expiring on 31 October saw its provisional open interest (OI)—outstanding buy-sell positions—fall by 6.9%, which, when analysed with the fall in the spot Nifty, indicates bearish sentiment over the short term.

Bank Nifty futures contract expiring on 30 October saw provisional OI increase by 1.7%, which signals bearish bias when read alongside the fall in Bank Nifty sectoral index by 1.59% to 52,978.10. A rise in OI accompanied by fall in prices signals bearish sentiment.

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Metals and media were the only two of 16 sectoral indices that ended in the green.

Despite the near-term bearish derivatives cues, market experts like Dhiraj Sachdev, CIO of family office fund Roha Venture, are optimistic. “I think such pullbacks are healthy and any foreign institutional selling would be absorbed by domestic institutions,” he said.