Massive outflow of foreign funds drag equity markets lower (Weekly Review)

Mumbai, May 21 (IANS) A massive outflow of foreign funds on the back of negative global and local cues dragged the Indian equity markets lower during the just concluded weekly trade.

Despite the recovery in fourth quarter results and expectations of a healthy monsoon, key benchmark indices registered small losses amid volatility throughout the week.

The stock exchanges operated in a tight range, even as the market breadth indicates the overall health of the key indices turned negative.

The wider 51-scrip Nifty of the National Stock Exchange (NSE) declined by 65.2 points or 0.83 percent to 7,749.70 points.

Similarly, the barometer 30-scrip sensitive index (Sensex) of the BSE receded by 187.67 points or 0.73 percent to 25,301.90 points.

During the week under review, the broader markets underperformed the barometer index. Both the BSE mid-cap and small-cap indices fell by over a percent each.

Sector-wise, PSU bank and media indices witnessed massive declines led by profit booking, whereas thrreality index continued to surge as real estate stocks topped the buying list this week.

Among the sector-based indices of the BSE — the bank index receded by 1.6 percent, metal index edged lower by 0.6 percent and IT index was down by 0.1 percent.

“In the week gone by, market continued to get spooked after worries over stricter participatory notes (P-Notes) norms and also on hawkish US FOMC minutes which increased the probability of a US Fed rate hike in June,” D.K. Aggarwal, chairman and managing director, SMC Investments and Advisors, told IANS.

The global and domestic markets receded on the back of renewed fears of a US rate hike after recent data showed a rise in the US consumer prices and evoked hawkish comments from US Fed officials.

Besides, the US Federal Open Market Committee’s (FOMC) April minutes disclosed that the US central bank might raise key lending rates in June.

A hike is expected to lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

“The FOMC minutes led to strengthening of dollar versus major currencies,” Vinod Nair, head of research with Geojit BNP Paribas, told IANS.

“Most of the Asian markets witnessed correction on concerns of outflow of funds from the emerging markets.”

Further, investors feared that equity markets might take a hit due to new stringent regulations on — offshore derivative instruments (ODIs) or participatory notes (P-notes).

The new stringent norms announced by market regulator Sebi have made it mandatory for all P-note users to follow anti-money laundering law and report any suspected breach immediately.

P-Notes, mostly used by overseas individual investors, hedge funds and foreign institutions, allow investments in Indian equity markets through registered foreign institutional investors (FIIs).

The investment instrument constitutes a major portion of the total FIIs’ investments into the key domestic indices.

“The fear over SEBI tightening of P-notes norms also impacted the domestic markets,” Nair said.

Data with stock exchanges disclosed that foreign institutional investors (FIIs) sold Rs.2,063.95 crore worth of stocks during the week under review.

In contrast, domestic institutional investors (DIIs) purchased scrip worth Rs.2,577.78 crore.

Figures from the National Securities Depository Limited (NSDL) showed that the FPIs (Foreign Portfolio Investors) divested Rs.2,117.79 crore or $316.92 million in the equity markets from May 16-20.

The disruption in global crude oil supply pushed up price near $50 per barrel, which too dampened the spirits.

In addition, the forecast of a slight delay in the arrival of monsoon and reduced chances of the Reserve Bank of India (RBI) easing key lending rates flared volatility.

“VIX (volatility index) is approaching upper band of the bull zone affirming to choppy and volatile sessions in the coming week,” said Nitasha Shankar, senior vice president for research with YES Securities.

However, the equity markets were able to pare some of their losses on the back of value buying at lower levels.

Moreover, investors’ sentiments turned mildly positive after the electoral victory of the Bharatiya Janata Party (BJP) in Assam, which could potentially strengthen the central government’s ability to push through economic reforms.

“The overall result for BJP can at least be called satisfactory after the reversal it had suffered in Delhi and Bihar as the party is doing better than other national parties,” said Pankaj Sharma, head of equities for Equirus Securities.

“Another important take away of these elections is that the charm of regional parties is still intact.”

(Rohit Vaid can be contacted at rohit.v@ians.in)

–IANS

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