The Indian stock market logged its worst loss since the beginning of 2024, dragged down by corporates’ largely disappointing quarterly earnings, inflation concerns, and foreign investors exiting the market to invest in China. D-Street experts say the domestic market is bracing for a potentially challenging period, with several factors poised to influence investor sentiment.
In the fourth week of October, investors will closely monitor key market triggers such as the next set of July-September quarter results for fiscal 2024-25 (Q2FY25), Middle-East geopolitical tensions, foreign fund outflows, crude oil prices, global cues, domestic and global macroeconomic data.
The Indian stock market extended its losing streak for the third consecutive week as the corrective phase continued, with Nifty 50 toppling to its weakest level since August before closing the week at 24,854, down nearly 0.50 per cent from the previous week, while Sensex declined around 0.20 per cent to end the week at 81,224.75
Besides lacklustre earnings, the theme for the week was an exodus of foreign funds from India as they shifted focus to China. The weakness in Indian indices was triggered by index heavyweights and retail inflation numbers, which fuelled expectations of a delay in an early rate cut by the Reserve Bank of India (RBI). Retail inflation in India rose to 5.49 per cent in September from 3.65 per cent in August, well above D-Street estimates of five per cent.
“It was the highest inflation rate since the start of the year, overshooting the RBI’s target of four per cent after dropping below the threshold in the first two months of the September quarter. However, a significant fall in crude oil prices helped the market to recover from lower levels,” said Palka Arora Chopra, Director of Master Capital Services Ltd.
On the weekly front, the BSE benchmark declined 156.61 points, or 0.19 per cent, and the Nifty went lower by 110.2 points, or 0.44 per cent. While the benchmark indices initially showed signs of recovery, persistent foreign outflow and earnings weighed on sentiment, turning the bias negative.
A recovery in banking majors during the final session helped pare some losses, but the frontline indices still settled lower. Sector performance was mixed, with banking, financials, and realty posting decent gains, while auto, metals, and FMCG sectors were the top losers. The broader indices reflected a similar trend, as the midcap index lost nearly a per cent while the smallcap closed slightly positive.
“A sustained selling pressure from FPIs muted Q2 earnings expectations, and elevated valuations acted as a headwind for the market. Insipid demand and volatility in input prices are the hindrances of a slowdown in earnings during the quarter,” said Vinod Nair, Head of Research, Geojit Financial Services.
“We expect the investment strategies favouring China over India may tactically support for the short term. However, the long-term outlook for the domestic market remains robust, with stability in growth and a pickup in capex,” said Nair.
This week, the primary market will witness intense action as some new initial public offerings (IPO) and important listings are slated across the mainboard and small and medium enterprises (SME) segments. The week will be critical from the domestic and technical point of view as investors will track corporate results, global markets and macroeconomic data.
Here are the key triggers for stock markets in the coming week:
Q2 Results
Investors will be busy analyzing corporate earnings in the coming week as the next batch of Q2FY25 results is set to be released. Shares of HDFC Bank, Kotak Mahindra Bank, Tech Mahindra, and a few others will be in focus on Monday as these companies declared their earnings results over the weekend.
Additionally, several consumer staples, FMCG, auto, and banking majors will declare their earnings in the coming week. Analysts said earnings are anticipated to be mixed, with some sectors performing well while others struggle.
Also Read: HDFC Bank Q2 Results: Net profit rises 5.3% to ₹16,821 crore, NII up 10% YoY; Asset quality declines
“Without any major triggers, market participants will focus on upcoming earnings for direction. First, they will react to the results of banking heavyweights such as HDFC Bank and Kotak Bank. Later, companies like ITC, Hindustan Unilever, ICICI Bank, BPCL, HPCL, and Ultratech Cement will also announce their earnings,” said Ajit Mishra – SVP, Research, Religare Broking Ltd.
9 new IPOs, 3 listings to hit D-Street
Four new issues will open for subscription in the mainboard segment this week: the Godavari Biorefineries IPO, Waaree Energies IPO, Deepak Builders & Engineers IPO, and Afcons Infrastructure IPO.
Five new issues will open in the SME segment starting Monday. Among the listings, shares of Hyundai Motor India will hit D-Street. Shares of two SMEs will debut this week on either BSE SME or NSE SME.
FII Activity
Foreign institutional investors (FIIs) continued to offload shares on the domestic front, selling ₹21,823 crore in the cash segment. In contrast, domestic institutional investors (DIIs) kept their buying momentum, purchasing ₹16,384 crore in the same segment.
“FIIs have been a key driver of the Indian market’s performance, and their stance will depend on factors such as global economic conditions and domestic political developments, and interest rate decisions by major central banks,” said Pravesh Gour, Senior Technical Analyst at Swastika Investmart Ltd.
According to stock exchange data, foreign portfolio investors (FPIs) have offloaded shares worth over ₹77,701 crore in the secondary market in October 2024 alone, marking the highest-ever monthly outflow from the domestic stock market.
D-Street experts said investors may take a cautious approach in the near term, waiting for market stability before gradually accumulating large-cap stocks, especially in sectors heavily impacted by the ongoing FII selling.
Selling through the exchanges has been higher at ₹83,082 crore. This massive selling caused a correction of about five per cent in the Nifty. Still, it didn’t seriously impact the market since almost all FPI selling has been absorbed by DIIs receiving sustained fund inflows.
Also Read: FPI Exodus in October: Financial Services, Oil & Gas, Auto sectors hit the hardest so far
“This trend of FII selling and DII buying will likely be sustained soon. The rationale behind FPI selling is the elevated valuations in India and the cheap valuations of Chinese stocks, which the FPIs have been buying aggressively since mid-September,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services
“This “sell India, Buy China” is most likely a short-term tactical trade, but it can run for some more time, given India’s elevated valuations. Since financials constitute the lion’s share of FPI holding, large-cap financials are under pressure. This is a buying opportunity for mid to long-term investors since this segment, particularly leading banking names, are fairly valued,” added Dr. V K Vijayakumar.
Global Cues
The US markets ended the week in green, making an all-time high of 43,325 and closing at (+0.96 per cent) 43,275, while the UK markets ended the week and closed in positive territory at (+1.27 per cent) 8,358, respectively. US core retail sales increased in September to 0.5 per cent compared to 0.2 per cent in August.
Analysts said that despite the ongoing positivity in the US markets, the Indian markets have been largely unresponsive. This divergence is likely to persist due to continued foreign fund outflows. Any change in the fund flow pattern would also be on the participants’ radar.
US durable goods orders data for September will be released on October 25, 2024. New orders for manufactured durable goods in the US were loosely unchanged from the prior month in August 2024, compared to the revised 9.8 per cent surge in July, which was the highest in four years.
The market’s outlook will be guided by major global economic data, such as US initial jobless claims, US manufacturing PMI (October), US services PMI (October), US S&P Global Composite PMI (October), and UK Composite PMI (October).
Oil Prices
International crude oil prices declined in the previous session to log their biggest weekly decline in one year after data showed China’s economic growth slowed amid weak demand and investors digested a mixed Middle East outlook. China’s slowdown has led to a bear grip on crude oil prices.
Brent crude futures fell $1.39, or 1.87 per cent, to $73.06 a barrel. US West Texas Intermediate (WTI) crude settled at $69.22 per barrel, down $1.45 or 2.05 per cent. Brent settled more than seven per cent lower this week, marking its biggest weekly decline since September 2. WTI lost around eight per cent, the biggest since October 2023.
Corporate Action
Shares of several major companies, such as HCL Technologies, L&T Technology Services, and Dalmia Bharat, among others, will trade ex-dividend this week, starting Monday, October 21, 2024. Some stocks also trade ex-bonus and ex-rights. Check full list here
Technical View
Technically, Nifty 50 may see some consolidation following three weeks of declines, but the outlook is likely to stay negative unless it decisively reclaims the 25,150 level. According to Ajit Mishra of Religare Broking, a sustained move above this could fuel a rebound, pushing the index towards the 25,500 zone.
On the downside scores, the 10-day exponential moving average (DEMA) for the Nifty 50 index, currently around 24,470, serves as key support, and a break below this level could lead to a drop toward the 24,000 zone.
Sector-wise, IT, pharma, and metals continue to show strength; although the mixed trends and the recent bounce in select banking stocks are promising, their sustainability remains crucial. “We recommend maintaining positions on both sides, focusing on risk management by adopting a hedged approach,” said Mishra.
Vinod Nair of Geojit Financial Services expects the market to be range-bound in the short term with mixed bias, while investors should turn more sector- and stock-specific in such a time. “The focus will be on large caps and growth areas like staples, agriculture, FMCG, consumption, power, digital, and infra. Buy-on dips will be the strategy on a short- to medium-term basis.”
Although Nifty has shown strength after taking support, the market awaits heavyweight results, which could dictate the next move. According to Palka Arora Chopra of Master Capital Services, a sideways to bullish approach is advisable as traders watch for further cues from upcoming earnings.
Bank Nifty started the week weakly but took support around its ascending trendline and 100-day EMA, leading to a sharp reversal from the 51,000 level. It closed strongly, breaking above the previous week’s high at 52,000, signalling strong buying interest, supported by positive bank results.
“The next resistance is at 52,300; a breakout above this level could push it towards 52,900. Support is 51,500, and a breach here may lead to 51,000 levels. Traders can adopt a buy-on-dips strategy to capitalize on this trend,” said Chopra.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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