Mumbai: The Nifty snapped a three-day losing streak on Friday, but posted the longest weekly losing streak of this year on relentless selling by foreign institutional investors (FIIs), who have flocked to China beginning late last month chasing a stimulus-led recovery in the world’s second -biggest economy.
Analysts expect the intense battle between bulls and bears to continue amid tepid earnings and muted sentiment among direct retail investors.
The Nifty ended lower for the third week in a row, shedding 0.44% to 24,854.05. On a daily basis though, it snapped a three-day losing streak, closing up two-fifth of a percent at 24,854.05 from highly oversold positions.
The recovery was led by the banking pack, which has seen maximum FII selling in the first half of the month. ICICI Bank, Axis Bank and HDFC Bank contributed to the bulk of the Nifty’s 0.4% movement.
“FIIs are selling and direct retail is not as confident as they were a few months back, which is why we will see these crests and troughs, until there is a sharper move,” said Ambareesh Baliga, an independent market analyst.
“What’s leading to the sell on rise, aside from FII outflows, is partial booking out by direct retail investors who were hugely long railways, defence and PSUs. They are probably not as confident as they were until a few months back,” he added.
Direct retail category includes investors who buy and sell from the cash market rather than use the mutual fund route.
FIIs selling continues
FII cash selling continued with provisional outflows of ₹5485.70 crore, even as DIIs purchased a provisional ₹5214.83 crore worth of shares, BSE data showed. This takes FII selling in the month so far to a record ₹83,186.7 crore, according to NSDL and BSE data for Friday.
“We expect consolidation to continue in the markets on account of mixed global cues and lack of domestic triggers,” said Siddhartha Khemka, retail research head at Motilal Oswal Financial Services. “However, stock-specific action will be seen driven by the quarterly earnings results.”
The results season hasn’t been too inspiring so far, with aggregate earnings including banks and NBFCs growing 2.86% year on year to ₹66,286.45 crore against the June quarter’s 5.07% year on year growth to ₹64139 crore.
The lacklustre earnings growth so far coupled with the FII selling has resulted in bearish sentiment so far this month. This was reflected by the value of marketwide call options exceeding that of put options by a record ₹6.12 trillion on an outstanding basis, according to Rohit Srivastava, founder, IndiaCharts.
What this means is that traders are selling more call options on indices and stocks on a cumulative basis than puts in the belief that markets wouldn’t rise, giving them the opportunity to pocket the premiums paid by call buyers to them .
Generally when markets are as overbought, as reflected by the low put call ratio, they tend to reverse. However, Srivastava believes any rise could be sold into by the FIIs and some retail participants.
“I think the medium term range for the markets is 24600-25600, with periodic bouts of supports and resistances being tested,” he added.
NSDL data shows that in the first fortnight of the month through 15 October selling ₹66,301 crore of shares, taking their overall equity assets to ₹75.65trillion.