Indian markets continue to be out of favour with global investors.
Even while global markets have been stable in the past few months, the National Stock Exchange’s S&P CNX Nifty index has lost 14% from its highs in November.
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The exchange’s CNX Nifty Junior and CNX Midcap indices have dropped by more than 20% during the same period. Some sectoral indices have fallen at a much faster pace—the CNX Realty index has dropped by 44%.
Foreign institutional investors (FIIs) have been worried about the relatively high valuations of the Indian market, apart from domestic problems such as high inflation and rising interest rates.
As pointed out in this column last month, the decline has been accompanied by higher levels of delivery-based transactions.
Technical analysts point out that much of the action is happening in the cash market.
This is significant because investors could have chosen to take short positions in the derivatives market if they felt the correction was only temporary.
The fact that the preferred route is the cash market indicates a relatively longer-term bearish view.
In the past three trading sessions, about 46% of the trades in the cash market have resulted in delivery, which is considerably higher than the historical average.
Thankfully, however, outstanding positions in the derivatives market have been relatively low. While the base itself was low running into the expiry of the January series last week, the extent to which traders rolled over positions from the January expiry series to the February series was also low compared with the previous months.
If outstanding positions had been high, the correction could have been much more.
As pointed out earlier, much of the action is happening in the cash market, with FIIs selling in large quantities.
In the last three trading sessions alone, they have sold shares worth close to Rs3,000 crore.
Meanwhile, domestic institutions have been relatively quiet, which means there isn’t enough buying to offset the selling from FIIs.
Graphic by Naveen Kumar Saini/Mint
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