Stocks extend losses as FPIs continue the selling spree

However, domestic funds’ buying in the last 45 minutes of trading contained the losses by the day’s end. The FPI selling, in the wake of a Fitch Ratings’ downgrade of US credit ratings on Tuesday, contributed to the rupee weakening to 82.73 to the dollar.

Both Nifty and Sensex plunged as much as 1.2% to their intraday lows before paring their losses to end 0.7 -0.8% lower each at 19,381.65 and 65,240.68. Late buying by domestic institutional investors (DIIs) worth a provisional ₹1,729.19 crore cushioned the day’s losses, with FPIs selling stocks worth ₹317 and Nifty and Bank Nifty futures contracts worth ₹3,442 crore. In a rare occurrence, they also turned net cumulative sellers in stock futures of 8,851 contracts. This indicates further volatility ahead.

Significant shorts have been formed in Nifty futures, with open interest of active futures contracts rising 10%.

Investors saw ₹96,206 crore of their wealth being eroded in Thursday’s fall. Analysts said the FPI sentiment had turned risk-off for now with a flight of safety to the dollar and US bonds. Turnover on the National Stock Exchange (NSE) spurted to ₹83,145 crore, up from an average daily turnover of around ₹73,000 crore last month, led by Vedanta Ltd contributing ₹5,829 crore on the selling of shares by the promoter, HDFC Bank Ltd ( ₹4,709 crore) and ICICI Bank Ltd ( ₹3,002 crore).

“Domestic markets continued to witness downward pressure as investor sentiment turned sour in the wake of Fitch Ratings’ decision to downgrade US credit rating (to AA+ from AAA),” said Siddhartha Khemka, the head of retail research at Motilal Oswal Financial Services.

Despite the second straight day of losses, Khemka advised his clients to use the dip to buy.

The Nifty’s losses were led by Nestle India Ltd, ICICI Bank Ltd, Bajaj Finserv Ltd, ONGC Ltd, and Titan Co. Ltd, which slumped between 1.93% and 2.39%. A total of 39 Nifty stocks declined against 11 that advanced, with one remaining unchanged.

The losses came on a day global brokerage Morgan Stanley upgraded India to overweight from equal weight while downgrading China to equal weight from overweight.

The brokerage remains bullish on Indian corporates’ earnings prospects and a better return on equity versus those for China.

“Indeed, considering Indian equities and China equities as a pair in USD terms and using the MSCI Indices as the benchmark, the beginning of a new era of Indian outperformance compared to China appears to be dawning.

“From 2003 to 2020, the two markets performed remarkably in line with each other – both having a tendency to outperform MSCI EM over the cycle. From early 2021, however, India has broken out dramatically to the upside, having outperformed China by over 100%. Whilst reversion to the mean is often a powerful force in finance, we think that this represents a structural break in India’s favour that warrants a bias to an OW versus a bias to EW or UW for China, with the medium-term driver being significantly higher USD EPS growth and ROE over the cycle for India vs China.”

The brokerage noted that the relative multiple (12-month forward PE) was over-extended last October, “but India can now probably sustain a significantly higher valuation premium vs China than in the past.”

The key event to watch for the markets is next week’s RBI monetary policy when it decides on its repo rate next Thursday.

Updated: 04 Aug 2023, 12:01 AM IST