Market sees volatility as foreign investors shift focus amid weak Q2 earnings
Market Decline Continues as Foreign Investors Pull Out
Indian stock markets are reeling from a wave of volatility, with the Sensex dipping below the 80,000 mark amid continuous foreign investor exits. On Friday morning, the Sensex dropped by 628.64 points, touching 79,436.52, while the NSE Nifty50 lost 254.30 points, trading at 24,145.10. This steep slide reflects growing caution among investors who have been shaken by weak Q2 earnings and a massive withdrawal of funds by Foreign Institutional Investors (FIIs). The withdrawal of nearly Rs 1 lakh crore from Indian equities this month has set the stage for a bearish outlook in the near term, impacting broader market sentiment.
Foreign Investors Withdraw, Fueled by China’s Renewed Attraction
October has seen FIIs pulling a substantial Rs 98,085 crore from Indian markets, influenced partly by more appealing prospects in China. China has recently introduced stimulus measures, including monetary policy easing and increased government spending, to boost its own flagging economy. These steps have attracted a significant inflow of global capital, with $19 billion moving into Chinese markets last month. As the ‘Buy China, Sell India’ narrative takes hold, Indian markets are grappling with the effects of reduced FII interest. Tarun Singh, founder of Highbrow Securities, explains, “China’s stimulus efforts have made it look like a premium mall on discount, offering foreign investors a compelling deal they’re reluctant to pass up.”
Market Signals Caution Amid Rising Volatility
The recent pull-out by FIIs is compounded by high market volatility, creating a sense of indecision among investors. The Nifty index closed below 24,400 on Thursday, forming a “Doji” pattern, a technical indicator that often suggests uncertainty in the market. Sameet Chavan, Head of Research at Angel One, predicts that Nifty will likely remain between 24,200 and 24,350 in the short term. He notes that a breakout above 25,000 could shift the market sentiment to a more bullish outlook; however, without that breakout, any upward movement is likely a temporary recovery. Experts encourage traders to approach with caution, monitoring support and resistance levels and managing trades with stop-losses to navigate these choppy waters.
Disappointing Q2 Earnings Add to Market Struggles
The market’s troubles are further exacerbated by underwhelming Q2 earnings reports across key sectors, including IT, pharmaceuticals, and textiles, which have failed to meet investor expectations. Companies like JSW Steel, Bandhan Bank, and Indigo are anticipated to release more critical earnings data in the coming days, with their performances likely to further influence the market mood. Prashanth Tapse, Senior VP at Mehta Equities Ltd., points out that upcoming corporate earnings will be crucial for assessing the market’s near-term direction.
Is China Alone to Blame? A Complex Landscape of Factors
While China’s stimulus measures have undeniably attracted capital away from Indian equities, experts argue that it is an oversimplification to blame China alone for the downturn. High inflation, market overvaluation, geopolitical concerns, and the looming U.S. presidential elections are all contributing factors driving the FII selloff. Gaurav Garg of Lemonn notes, “Foreign investors are realigning portfolios not only due to China’s stimulus but also amid valuation concerns and safe-haven flows given ongoing global tensions, particularly in the Middle East.” This complex mix of economic and political elements has created a challenging environment for Indian markets.
Domestic Institutional Investors Offer Some Stability
Despite the turbulence, Domestic Institutional Investors (DIIs) are helping to absorb some of the shock from FII sell-offs. Mutual fund inflows have provided support to Indian markets, offering a degree of stability in the face of otherwise heavy selling pressure. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlights that certain large-cap financial stocks are showing resilience, suggesting that there are still opportunities within the current market landscape. Although the usual “buy on dips” strategy that worked effectively post-COVID has lost some of its appeal, DIIs continue to play a stabilizing role, helping the market to hold its ground amid FII withdrawals.
Economic and Global Events May Influence Future Trends
With the current volatility showing no immediate signs of abating, analysts are keeping a close eye on upcoming corporate earnings, global economic trends, and geopolitical events. The approaching U.S. presidential election and any further developments in Middle Eastern conflicts could weigh heavily on global markets, including India’s. Additionally, sectors such as IT and pharmaceuticals, which are heavily reliant on international markets, remain sensitive to changes in global economic policies and currency fluctuations.
Investor Outlook: Short-Term Caution with Long-Term Optimism
In light of the current market climate, experts recommend that investors exercise caution and adopt a selective approach when making trades. Analysts suggest looking for stocks with strong support levels and monitoring key resistance points closely. While there is potential for recovery if markets break above certain technical levels, the likelihood of continued volatility remains high. For those with a long-term perspective, however, there are still growth opportunities to consider. Select large-cap stocks in resilient sectors such as financials could offer stability during this period of market indecision.
Diwali or Not, Investors Remain Wary as FII Outflows Persist
This Diwali season, as Indians prepare for festive investments, it appears that foreign investors are redirecting their focus toward China, dampening the festive mood on Dalal Street. The confluence of weak corporate earnings, China’s stimulus-driven appeal, and global economic uncertainties have positioned Indian markets for a challenging period. Yet, with DII support and a strategic approach, investors can still find stability. Market watchers remain hopeful that the current downturn will be temporary, and as global conditions stabilize, so too will investor confidence in the Indian stock market.
(With inputs from agencies)
