Markets
Heavy FII selling, derivatives expiry torpedo relief rally
Summary
- Thursday’s fall put an end to a rally that saw benchmark indices NSE Nifty and BSE Sensex gain 1,100 and 3,700 points, respectively, from their lows a week ago.
The relief rally fizzled out sooner than expected. The heaviest selling by foreign investors in more than three weeks, amid rising US bond yields and a strengthening dollar, brought the markets crashing more than 1.5% on Thursday, leaving investors poorer by ₹1.55 trillion. The expiry of Nifty monthly option contracts on Thursday also pulled down sentiment.
Thursday’s fall put an end to a rally that saw benchmark indices NSE Nifty and BSE Sensex gain 1,100 and 3,700 points, respectively, from their lows a week ago. Last Thursday, the Nifty and Sensex had tumbled 3,014 and 9,176 points from their respective record highs on 27 September to lows of 23,263.15 and 76,802.73.
The profit booking by foreign institutional investors (FIIs) saw them net sell shares worth ₹11,756.25 crore, according to data from BSE. The selling comes on the heels of record monthly outflows of ₹94,017 crore in October.
Inflows of ₹8,718.30 crore by domestic institutional investors (DIIs) on Thursday were inadequate to stop the slide. The outflows singed not only stocks, but also dragged the rupee down to a record low of ₹84.5075 before it settled at ₹84.4962, per Bloomberg data.
Experts, though, predicted that the market is likely to trade rangebound going forward, with a downward bias in the absence of fresh triggers.
Why the fall
On Thursday, the Nifty and Sensex gave up key psychological supports of 24,000 and 80,000. The 50-share Nifty fell 1.49% to settle at 23,914.15 while the Sensex tumbled 1.48% to 79,043.74.
The fall came on a day of monthly Nifty derivatives expiry, which at times results in higher volatility. The Nifty options and futures expire on the last Thursday of a month.
Infosys, HDFC Bank, Reliance Industries, ICICI Bank and Mahindra & Mahindra (M&M) dragged down the benchmark Nifty the most, contributing over two-fifths of its 360.75-point fall.
“Traders who were sitting on tidy profits started selling an hour and 15 minutes into trading in the absence of buying at higher levels by FIIs," said Deepak Jasani, head-retail research at HDFC Securities.
Also read | Nifty earnings growth estimate for FY26 looks tough: Kotak MF's Nilesh Shah
The corporate scorecard for the September quarter was dented by oil and gas while financials hogged the limelight, resulting in tepid growth. Profit after tax of 275 companies in Q2 in the Motilal Oswal Financial Services universe declined 1.3% year-on-year at ₹2.63 trillion, which was 1.4% lower than expectations.
“Priced to perfection, the disappointing Q2 earnings along with rising bond yields in the US prior to and post (Donald) Trump’s victory caused record FII outflows in October," said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
While earnings disappointed, bond yields in the US have risen 53 basis points (0.53 percentage) to 4.26% between 1 October and 28 November as fears of tax cuts and tariff hikes by the US President-elect have inflation expectations.
The repo rate scenario
Meanwhile, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) is unlikely to change its policy rate from 6.5% when it meets on 4-6 December, even as expectations of the US Fed continuing with gradual 25 basis points cuts rather than the 50-bps seen in mid-September have been discounted by markets.
“I think rate cut expectations have been priced in and we can trend in a 23,600-24,500 range next month," added Jasani who said a positive fallout like increased government spending could drive the market to break the upper end of the range.
“Until then, it will be wait and see on how durable an Israeli ceasefire with Hezbollah will be, which, if it holds, can drive down crude and, thus, impact us favourably," he added.
Also read | As foreign funds flee amid global uncertainty, domestic investors seize the Nifty dip
If the market breaks the lower end, though, it could test the low of India’s general elections results day of 21,281 on 4 June, he warned.
Holland, too, expects the markets to be rangebound, but refrained from giving any levels for now.
Interestingly, market heavyweight Reliance Industries has the highest cumulative open interest of 2.18 million shares among stock futures, the highest in 18 years, per Rohit Srivastava, founder of IndiaCharts.
Open interest or OI refers to the outstanding buy-sell positions. A rise in OI accompanied by a price fall implies bearish sentiment, while a rise in OI accompanied by a price rise implies bullish sentiment. In the past year, Reliance Industries has fallen from a closing high of 1,600.90 on 8 July to ₹1,270.80 on Thursday, per Bloomberg.
Adani stocks
Meanwhile, the Adani group stocks ended mixed as news of group founder Gautam Adani and his colleagues not being indicted under the Foreign Corrupt Practices Act by the US department of justice spurred buying in Adani Enterprises, up 1.6% at ₹2,437.
Adani Green Energy and Adani Energy Solutions remained locked at the 10% upper circuit of ₹1,087.2 and ₹726.85 each. However, Adani Ports ended down 2.5% at ₹1,169.55 while Adani Wilmar ended lower by 0.4% at ₹313.40.
And read | Bank Nifty’s rebound: A signal for market outperformance?
