The markets have been struggling for the past 6 sessions and the investors have turned significantly cautious. Both the Sensex and Nifty are off 10% from their recent highs. Though the sectoral indices saw some bounceback on November 14, the Sensex is nearly 8000 points down from its all-time highs while the The Nifty settled around a key support level of 23,500 in trade today.
Over Rs 23 lakh crore worth of investor wealth has been wiped off in the past few sessions. One of the reasons for this sharp cut has been the huge outflow in the past few weeks. For November so far, FIIs have already sold over Rs 27,000 crore.
FII selling not a big worry
The question that’s worrying most investors now is how much more would the FIIs sell and how this would impact markets. Dhiraj Relli, Managing director of HDFC Securities, is not worried. He pointed out that domestic investors have the wherewithal to absorb this selling spree by the FIIs, “We have seen unprecedented outflows from FPIs in October and in the last 25 odd years similar kind of 10 billion outflows were seen only twice. Once in 2009 and in 2020 during Covid-19. If you look at now, the market has been very resilient. FPIs definitely will find US more attractive after Trump’s victory so they may not invest as much in EMs. We may continue to see outflows for some more time. But it is adequately compensated by Indian investment community. That’s where we see good inflows from SIPs. So domestic institutions are able to absorb this FPI selling with ease.”
Is earnings the big worry?
Earnings appear to be the bigger cause for concern as most companies reported muted results in Q2.
According to Deven Choksey, managing director of DRChoksey FinServ, “One of the reason for the fall is de-rating of the stocks after the second quarter earnings announcement but the earnings performance is unlikely to cause any permanent damage. In my viewpoint, the second half of the financial year would be significantly better compared to the first half of the financial year, and that’s where probably, I think you are likely to see the earnings recovering back,” and this he believes will give opportunity to investors to buy stocks at lower levels.
Relli added that he expects the earnings pain to be temporary, “I think the earning growth will slow down a bit this year. As a result of elections, lesser capex and higher monsoon and its negative impact, this year it will be 7%. But for the next year we are projecting about 18% earning growth. Next couple of quarters will be somewhat painful.”
Nifty- Key levels to watch
How much can the indices fall further from current levels? According to Choksey, 23,200 is the next most important level, “currently, we are watching out for Nifty support at 23,200 is a key level for the Nifty. If that is not holding, then probably we’ll have to work out, But at 23,200, I think the valuations have started becoming more attractive than they were before.”
Relli pointed out that the, “upside in terms of broad indices level is very limited. In case the markets are able to get back to the all-time high levels or a little bit higher from there, that should be a good outcome for the markets. On the downside, if we break certain levels, then we could have a more steeper correction in the market, and that would also coincide with the what kind of earning growth we get in the next two quarters.”