Bear hug persists amid weak earnings, US prez election outcome

The bear hug embracing Indian markets got tighter on Monday, even as a buying spree at the day’s lows enabled the benchmark indices to trim losses while still closing in the red, leaving investors poorer by ₹6.18 trillion.

Lead indicators like derivatives shorting by institutional investors and buying by retail, and a rise in fear gauge Vix to a five-month high indicate sustained pressure in the short term. Poorer-than-expected Q2 results so far, too, have added to the sombre environment.

The BSE Sensex has now shed 7,196 points from its peak of 85,978.25 on 27 September, and the NSE Nifty is now 2,282 points below its peak of 26,277.35 on the same day.

On Monday, the Nifty fell below the psychological level of 24,000, closing 1.27% down at 23,995.35. The Sensex shed 1.18% to end at 78,782.24 as foreign institutional investors (FIIs) sold shares worth a provisional ₹4,329.79 crore.

However, domestic institutional investors (DIIs) provided some succour again, as their net purchases (provisional) of ₹2,936 crore worth of shares saw both benchmarks recovering from their intraday lows of around 2% each. For instance, the Nifty closed well above the day’s low of 23,816.15, and the Sensex recovered from its intraday low of 78,232.6.

Also read | Indian stock market: 8 key things that changed for market over weekend

“When markets were falling, dealer screens showed institutional shorting and retail buying, which is a worrying sign for the short term at least,” said Gaurav Dua, head - capital market strategy at Sharekhan by BNP Paribas.

Dua cited another lead indicator, fear gauge India Vix’s rise by 5.01% to a five-month high of 16.69, as a sign of “increased uncertainty” amid poor corporate earnings and the impending outcome of the US presidential polls by Wednesday India time. “These two lead indicators hint at persistent volatility in the near term,” he said.

A little more than a month ago, the Nifty had traded at record highs. However, a stimulus-driven China rally, weak quarterly earnings at home, and rising bond yields in the US led to record outflows of ₹1.1 trillion by FIIs in the cash market last month.

Although DII buying matched the FII selling, the selling intensity of the latter in the cash market segment and short bias in derivatives segment dragged down the Nifty 8.68% from late September’s record high to Monday’s closing.

The earnings picture

The earnings of 34 out of 50 Nifty companies declared by 31 October showed flat growth year-on-year versus a 2% plus growth estimate by Motilal Oswal Financial Services in an interim review of the Q2 earnings performance.

The brokerage cut its FY25 earnings per share estimate for Nifty by 1.2% to ₹1,059 and that of FY26 by 1% to ₹1,256 led by downgrades in BPCL, Reliance Industries, Maruti Suzuki, Bajaj Finance and IndusInd Bank.

“Results for the September quarter have fallen short of expectations, leading to earnings downgrades,” agreed Vinit Sambre, head -equities, DSP Mutual Fund.

Also read | Samvat 2081 has potential overall, but volatility to persist : Aamar Deo Singh

He attributed the “disappointing performance” to reduced government spending and slow consumption growth while saying that urban consumption, which was previously resilient, was showing signs of slowing down, partly due to heavy rainfall.

“If growth fails to pick up, it could pose further risks to both earnings and market performance,” Sambre added.

Stocks that weighed down the Nifty on Monday included Reliance Industries, which contributed 55 points to its fall, HDFC Bank (-39 points), ICICI Bank (-23), Axis Bank (-19) and Bharti Airtel (-15 points).

Monday’s fall more technical than fundamental?

Meanwhile, a fund manager said Monday’s sale was more technical than fundamental as lack of clarity over a circular issued by Association of Mutual Funds of India (AMFI) effective 4 November would restrict traders at asset management companies from aggressive buying or selling even if the price was in their favour. The fund manager spoke on condition of anonymity as he is not authorised to speak with media.

He explained that if a share price deviates from its volume weighted average price (the price at which maximum buy or sell volumes occur) or at very high traded volumes, it could generate alerts at trade level on grounds of suspicious activity and potentially prevent the AMC trader from buying it at one go. If such trades are executed, the AMC will have to explain to its board of trustees why it bought or sold the share above or below the VWaP as this will be termed a suspicious trade.

Also read | India's IPO Rush: 336 companies go public in Samvat 2080, dominated by SMEs

Instead, the trader will have to buy it throughout the day and not in the first and last 90 minutes when most traded volumes get matched. This will lead to AMCs not being able to absorb all the FII selling optimally, he added.

Another market constituent, also requesting anonymity, said that the circular titled “standard practice on institutional mechanism for identification and deterrence of market abuse” was issued a while ago and that its impact could be “exaggerated”.

AMFI CEO Venkat Chalasani was not immediately available for comment.