Foreign Investor Exodus Hits Indian Markets
Foreign investors extended their selling spree for the fourth consecutive day on Friday, leading to the steepest weekly losses in 30 months for India’s benchmark indices, the Nifty 50 and Sensex. Retail selling added to the rout, eroding investor wealth by a staggering ₹8.75 trillion in a single day.
The sell-off was part of a broader emerging market exit by Foreign Portfolio Investors (FPIs), who are flocking to low-risk U.S. bonds amid rising bond yields and a strengthening dollar.
Indices Fall Below Key Levels
The Nifty fell 1.5% to close at 23,587.5, while the Sensex dropped by a similar percentage to end at 78,041.59 on Friday. FPIs net sold shares worth ₹3,597.82 crore, overshadowing the ₹1,374.37 crore net purchases by Domestic Institutional Investors (DIIs).
Adding to the market woes, both indices slipped below their crucial 200-day Simple Moving Averages (SMA), signaling a bearish trend. The Nifty’s 200-day SMA stands at 23,834, while the Sensex’s is 78,320.76, according to Bloomberg data.
Rupee Under Pressure
The rupee tested a record low of 85.10 against the U.S. dollar during the day, recovering slightly to close at 85.02 after intervention by the Reserve Bank of India (RBI). Analysts expect the rupee to trade between 84.90 and 85.50 in the coming month.
Global and Domestic Triggers
Investor sentiment took a hit following the U.S. Federal Reserve’s revised outlook, which now projects only two rate cuts in 2025, down from four. Rising global inflation expectations and a hawkish stance by central banks have added to the bearish outlook.
On the domestic front, passive selling through foreign Exchange-Traded Funds (ETFs) exacerbated the decline. Market experts believe clarity on economic and fiscal policies, including the Union Budget scheduled for February 1, could provide direction.
Small- and Mid-Cap Stocks Hit Hard
The sell-off extended to small- and mid-cap stocks, with the Nifty Midcap 150 index declining by 2.41% and the Nifty Smallcap 250 falling 2.01% on Friday. Both indices are now 6.5% and 5.3% below their recent highs, respectively.
Heavyweights Drive Losses
Reliance Industries, HDFC Bank, Tata Consultancy Services (TCS), Axis Bank, and Larsen & Toubro contributed to two-fifths of the Nifty’s 364.20-point fall on Friday. Notably, Reliance hit a 52-week low of ₹1,201.5 per share.
Outlook and Strategy
Market analysts warn that the bearish trend may continue in the near term, particularly for small-cap and mid-cap stocks, which have shown greater resilience so far.
However, this period of correction is seen as an opportunity to accumulate quality stocks. “The markets look reasonably valued, and investors can focus on private banks and consumer stocks with rural exposure,” said Swarup Mohanty, Vice-Chairman and CEO of Mirae Asset Investment Managers (India).
Zomato Faces Pressure Amid Index Rebalancing
Even the semi-annual rebalancing of the Sensex and FTSE indices failed to lift sentiment. Zomato Ltd, which replaced JSW Steel Ltd on the Sensex, saw its stock decline by 2.29% to ₹281.85 per share on Friday.
As the markets navigate this turbulent phase, analysts suggest waiting for more clarity in January, with Q3 earnings and the Union Budget on the horizon.
