FPI outflows; Domestic Stock Market Face Persistent Selloff Challenge
The Indian stock market is grappling with unrelenting foreign portfolio investor (FPI) outflows, as Thursday’s trading session witnessed a massive selloff of Rs 11,756.25 crore. According to data from the National Securities Depository Limited (NSDL), net FPI flows for the calendar year 2024 have turned negative, with an outflow of Rs 6,486 crore so far. This situation has caused market analysts and investors to urgently seek explanations in the face of increased market volatility.
A Volatile Pattern in FPI Activity
The volatility in FPI activity is raising questions. A few days of buying are often followed by significant selloffs, creating erratic market behavior. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, described this as “inexplicable” and difficult to justify based on prevailing trends.
“Thursday’s substantial selloff followed a brief phase of buying, highlighting the uncertainty in FPI behavior. The factors driving such irrational activity remain unclear,” said Vijayakumar.
Contributing Factors Behind the Selloff
Experts point to several factors that may be driving this relentless outflow of foreign funds:
- Global Interest Rate Dynamics:
The U.S. Federal Reserve’s hawkish stance on interest rates is diverting foreign capital back to safer havens. Rising U.S. Treasury yields make emerging markets less attractive. - Stretched Valuations:
Indian equities, particularly in sectors like financials and IT, are perceived to be overvalued. This has triggered profit-booking by foreign investors. - Disappointing Q2FY25 Earnings:
The subdued performance of Indian companies in the second quarter of FY25 has added to the pessimism. Earnings growth has not been robust enough to support high valuations. - Macroeconomic Concerns:
Inflationary pressures and geopolitical uncertainties continue to weigh on investor sentiment, exacerbating outflows.
Is There More to Come?
Market watchers are divided on whether this is a temporary phase or a sign of sustained bearish sentiment. Vijayakumar advised investors to adopt a cautious approach.
The ‘Buy on dips’ approach might not provide instant gains in the current market, but it continues to be a sound strategy for those looking at a medium to long-term investment horizon. For consistent returns, investors are advised to concentrate on large-cap stocks within the financial, IT, capital goods, and telecommunications sectors.
For traders, Vijayakumar advises waiting for confirmation of price action at critical support levels before opening new positions.
Market Levels to Watch
According to Choice Broking, the immediate support levels for the Nifty are at 23,800 and 23,680, aligned with strong Fibonacci levels. These zones could act as potential reversal points if supported by positive price action.
On the upside, 24,350 serves as immediate resistance. A sustained breakout above this threshold could propel the index toward the 24,800 and 25,000 marks, revealing significant upward potential.
The Impact of F&O Changes
Thursday marked the inclusion of 45 new stocks in the Futures and Options (F&O) segment, a development likely to trigger stock-specific actions in the coming days. Analysts believe these additions could bring new trading opportunities, albeit with heightened risk.
October and November: A Difficult Phase
October proved to be a challenging month for Indian equities, with November continuing the trend. For the first time in nearly 18 months, the Nifty 50 breached its 200-day moving average, stirring concerns among market participants.
Although the index managed to recover by the end of the November F&O series, it still closed 1.2% lower. Analysts from Nuvama termed the situation as a “nightmare sequel,” driven by stretched valuations, persistent FPI outflows, and lackluster earnings.
Expert Opinions and Outlook
Despite the current headwinds, there is hope for a rebound. Market strategists believe a combination of domestic economic resilience and global tailwinds could eventually stabilize the situation.
- V K Vijayakumar’s Advice:
Stick to largecaps with strong fundamentals for medium- to long-term gains. Avoid speculative positions in the current volatile environment. - Choice Broking’s Technical Analysis:
Observe key support and resistance levels before entering trades. Immediate opportunities lie in reversals near 23,800 or breakouts above 24,350. - Nuvama’s Perspective:
November offered no relief after October’s turbulence, but a recovery is possible as markets digest stretched valuations and weak earnings.
The Road Ahead
For now, the Indian stock market remains in flux, driven by relentless FPI outflows and macroeconomic challenges. While there is uncertainty in the short term, disciplined investors focusing on long-term opportunities could find value in sectors like IT, financials, and telecom.
Traders are advised to remain cautious, relying on technical confirmation before initiating trades. With support levels acting as potential pivot points, the coming weeks could reveal whether this phase is a temporary correction or the start of a more prolonged bearish trend.
FPI outflows, Indian stock market, Nifty 50 levels, Market volatility, Largecap investments
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