And The Verdict: Markets Weak, Rs 2 Lakh Crore Wiped Out in Market-Cap As FPIs Pull Out Rs 22,400 Crore In November. Selling Pressure To Continue.

The Indian equity markets have had a turbulent November, with a significant correction in the Nifty 50 index and a sharp sell-off from Foreign Portfolio Investors FPIs amounting to Rs 22,400 crore. Over the past week, this volatility resulted in India’s top-valued firms collectively losing nearly Rs 2 lakh crore in market capitalization.

Markets Under Pressure

The Nifty 50 index has been under consistent selling pressure, reflecting a broader process of mean reversion. Despite a truncated trading week, the index saw a wide trading range of 852 points, ultimately closing with a net weekly loss of 615.50 points (-2.55%). The volatility index, IndiaVIX, rose marginally by 2.11%, settling at 14.77, indicating that while the market was unsettled, it did not experience a dramatic surge in volatility.

Technically, the Nifty closed slightly below its 200-day moving average (DMA) of 23,555, a critical support level, but managed to avoid a steeper decline. The index is now within range of its 50-week moving average (MA) at 23,253. This level will be crucial in determining whether the primary uptrend remains intact.

Technical Indicators Signal Weakness

The weekly RSI at 43.26 has hit a fresh 14-period low, signaling bearish momentum without divergence. Further downside could see the index testing the 50-week MA at 23,253, potentially dipping to the 23,000 level. Key resistance levels are pegged at 23,650 and 23,780, while support zones stand at 23,250 and 23,000.

Sectoral Dynamics

Leading Quadrant: Nifty Services Sector, Pharma, Financial Services, and IT sectors remain resilient and poised to outperform.

Weakening Quadrant: Consumption, Midcap 100, and FMCG indices show declining relative performance.

Lagging Quadrant: Realty, Infrastructure, PSE, Media, Auto, Commodities, and Energy indices continue to underperform. However, there is a gradual improvement in momentum for Commodities, Energy, Realty, and Infrastructure sectors.

Improving Quadrant: The Bank Nifty, PSU Bank, and Metal indices are gradually showing signs of recovery in relative performance.

Investor Strategy: Caution is Key

For investors, the current market scenario calls for a cautious approach:

Reduce Leveraged Exposures: The weak breadth suggests that technical rebounds may not sustain, and gains could be fleeting.

Focus on Sectoral Strength: Concentrate on sectors in the leading quadrant, such as IT and Pharma, while avoiding sectors in the weakening quadrant.

Protect Gains: Any technical relief rally should be viewed as an opportunity to safeguard profits rather than chase further gains.

FPIs Continue With Heavy Selling

Foreign Portfolio Investors (FPIs) have sustained their bearish stance on Indian markets in November, continuing the massive sell-off trend observed in October. Data from the National Securities Depository Limited (NSDL) reveals that FPIs pulled out Rs 22,420 crore in the first half of November alone. This follows October’s staggering outflow of Rs 1,13,858 crore, signaling a prolonged period of pessimism among foreign investors.

Despite their exit from secondary markets, FPIs maintained some confidence in the primary market, investing Rs 9,931 crore in initial public offerings and follow-on offers. However, their cautious approach extended to Indian debt markets, with outflows totaling Rs 4,717 crore during the same period.

Key Triggers for FPI Outflows

The continued sell-off by FPIs can be attributed to a confluence of factors –

High Valuations in Indian Markets: Elevated valuations have made Indian equities less attractive compared to other emerging markets.

Earnings Downgrade Concerns: Persistent downgrades in corporate earnings have raised doubts about future growth prospects.

Global Factors, Including the “Trump Trade”: The victory of Donald Trump has led to significant movements in US markets. While equities have boomed on optimism around corporate tax cuts and pro-business policies, bond markets are grappling with concerns over rising fiscal deficits. The sharp uptick in the 10-year US bond yield to 4.42% has further deterred investment in emerging markets, including India.

Top Firms Bear the Brunt of Market Weakness

The weak sentiment in equity markets has led to a significant erosion of market capitalization among India’s most valuable firms. In a holiday-shortened week, eight of the top 10 most-valued companies lost a collective Rs 1.65 lakh crore in market value.

HDFC Bank saw the steepest decline, shedding Rs 46,729.51 crore to reach a valuation of Rs 12,94,025.23 crore.

State Bank of India (SBI) followed, with a loss of Rs 34,984.51 crore, bringing its mcap to Rs 7,17,584.07 crore.

Hindustan Unilever (Rs 27,830.91 crore) and Reliance Industries (Rs 22,057.77 crore) also saw substantial declines.

ITC and Bharti Airtel lost Rs 15,449.47 crore and Rs 11,215.87 crore, respectively.

LIC and ICICI Bank experienced smaller declines, losing Rs 4,079.62 crore and Rs 2,832.38 crore, respectively.

On the brighter side, Infosys and Tata Consultancy Services (TCS) bucked the trend, adding Rs 13,681.37 crore and Rs 416.08 crore to their market capitalizations, respectively. Reliance Industries retained its position as India’s most valued firm, followed by TCS, HDFC Bank, and ICICI Bank.

Mounting Challenges for Indian Markets

According to Ajit Mishra, SVP, Research at Religare Broking, rising consumer price inflation (CPI) and persistent corporate earnings disappointments have weighed heavily on market sentiment. The BSE Sensex reflected these concerns, shedding 1,906.01 points (2.39%) over the week.

The sharp FPI outflows and weak market breadth suggest that the Indian markets may face continued pressure in the near term. The dual headwinds of global uncertainty and domestic challenges, including inflation and earnings pressures, pose significant risks.

Cautious Optimism with Strategic Focus, While the markets remain under pressure, certain factors could offer respite:

Sectoral Resilience: Sectors like IT, Pharma, and Financial Services continue to show relative strength, making them attractive for selective investment.

Primary Market Stability: The continued FPI interest in the primary market signals confidence in long-term growth stories.

Support Levels to Watch: On the technical front, the Nifty’s 50-week MA at 23,253 remains a critical support. A sustained hold above this level could help stabilize sentiment.

However, the overall outlook remains cautious. With persistent FPI selling and concerns over valuation and growth, investors are advised to adopt a selective approach, focusing on resilient sectors and avoiding high-leverage exposures. Gains from any relief rallies should be carefully protected, as markets remain vulnerable to further corrections.

Outlook for the Coming Week

The upcoming truncated trading week, with a holiday on November 20 for Maharashtra Assembly Elections, may bring a mix of relief rallies and continued selling pressure. While the primary uptrend remains intact for now, the market’s ability to hold its critical support levels will be pivotal.

With caution reigning supreme, the verdict is clear – the markets remain in a fragile state, vulnerable to further corrections, yet not entirely devoid of opportunities for selective, strategic investments.