Nifty's Record Run Hits a Wall as Foreign Investors Retreat
The Indian equity market's attempt to scale a new peak is meeting significant resistance. The Nifty's push to break its September 2024 high and set a fresh record is being challenged by a major sell-off from Foreign Institutional Investors (FIIs).
Data shows FIIs offloaded shares worth a massive Rs 4,171 crore in the cash market on Monday. This substantial selling pressure has acted as a major headwind for the index. In a contrasting move, Domestic Institutional Investors (DIIs) provided a counterbalance by purchasing shares valued at Rs 4,513 crore on the same day.
Global Cues Present a Mixed Bag for Indian Markets
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, provided insights into the global landscape. He noted that the clues from international markets are mixed. On the positive side, the ongoing rally in US markets and growing expectations of a 25 basis point rate cut from the US Federal Reserve are favourable for global equity sentiment.
However, a note of caution emerges from the tech-heavy Nasdaq, which witnessed a sharp 2.69% rally. This surge, coupled with a big rebound in the Magnificent 7 stocks, is reigniting fears of an artificial intelligence (AI) bubble. Dr. Vijayakumar suggests that India will benefit on a sustained basis only when the AI trade weakens, prompting money to flow into emerging markets like India and into non-AI stocks.
Midcaps Steal the Show as Largecaps Await Revival
A key development emerging from the latest corporate earnings season is the clear outperformance of midcap companies. An important takeaway from Q2 results is that midcaps are outperforming largecaps in both revenue and profit growth, explained Dr. Vijayakumar.
This superior fundamental performance explains the resilience of the midcap index, which recently set a new record. The expert, however, believes the picture could shift again. The momentum may favour largecaps when the Q3 quarterly numbers indicate a revival of earnings growth in these bigger companies.
Within the largecap universe, top names in sectors such as telecom, automobiles, private and PSU banks, NBFCs, and capital goods are expected to remain resilient and possess the potential to rally. On the other hand, smallcaps, in general, are likely to be weighed down by their elevated valuations, making them more vulnerable.
Meanwhile, US stocks continued their upward trend on Monday, building on Friday's gains. This optimism is largely driven by investors focusing on the increased possibility of a Federal Reserve rate cut in December, while choosing to overlook concerns about stretched tech stock valuations.
