Indian equity markets registered their biggest weekly decline this week in more than two years (since June 2022) as foreign institutional investors (FIIs) pressed the selling button to bet on China and Hong Kong amidst rising tension in the Middle East which is posing inflationary challenges to the global economy following a sharp surge in oil prices.
The big correction has resulted in the benchmarks – BSE Sensex and NSE Nifty50 – shedding up to 4.5% during the week ending October 4. It was in the week between June 6 and 10, 2022 when the benchmarks had registered a bigger fall as Nifty50 had then declined by about 5.6%.
Investors lost a whopping Rs 17 lakh crore this week as the combined market capitalisation of BSE-listed companies, which stood at Rs 478 lakh crore as of closing last Friday, came down to Rs 461 lakh crore this Friday.
The local indices ended lower for the fifth straight session on Friday with Nifty briefly falling below the 25,000 level intraday. At close, the Sensex was down 808.65 points or 0.98% at 81,688.45, and the Nifty was down 200.30 points or 0.79% at 25,049.80.
After selling shares worth Rs 15,243 crore on Thursday, the highest in a single session in four years, the FIIs sold another Rs 9,896.95 crore worth of shares on Friday, taking the last four sessions combined selling to about Rs 40,000 crore.
Chinese stimulus a magnet for FIIs
"FIIs are moving money from expensive India to cheap Hong Kong on expectations that the monetary and fiscal stimulus being implemented by the Chinese authorities will stimulate the Chinese economy and improve earnings of Chinese companies. It remains to be seen how this Chinese recovery hopes play out," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The Hang Seng index has risen more than 30% in the last one month while the Shanghai Composite Index has jumped more than 20% in just 5 sessions.
Ajit Mishra, SVP, Research, Religare Broking, said that the ongoing geopolitical tensions have driven crude prices higher, dampening hopes for a rate cut by the RBI in the upcoming policy meeting.
"Additionally, noticeable selling by foreign investors is adding to the market's strain. While there may be a pause or slight rebound after the recent slide, the overall bias will remain negative unless Nifty decisively reclaims the 25,600 level," added Mishra.
Crude prices have risen by $7 per barrel in the past 7 days during which Israel bombed a bunker in Beirut and killed Hezbollah supremo Hassan Nasrallah and Iran retaliated against Israel by launching a missile attack. Experts fear that if the two regional powers in Western Asia continue to attack each other, oil prices may surge even higher.
What lies ahead
Siddhartha Khemka, Head - Research, Wealth Management, Motilal Oswal Financial Services, expects markets to consolidate next week amid cautiousness due to fear of increasing tensions in West Asia.
"With the start of the earning season next week, stock-specific action will continue. Also, the focus will remain on interest-sensitive stocks amid the RBI policy meeting next week. Although rate cut is not on the table, commentary will hold great importance," added Khemka.
Real estate stocks were the most affected lot this week with the Nifty Realty index plunging nearly 8.7% this week. Nifty Financial Services fell 6.2% while Nifty Auto declined 5.7%. About 42 stocks in the Nifty50 pack fell this week.
Index heavyweights - Reliance Industries –fell about 9% while HDFC Bank and ICICI Bank plunged about 5% each.
