The stock market is likely to continue its downward trend until the end of the US elections

The benchmark Nifty50 index lost 6.3 per cent to 24,180.8 this month due to record selling by foreign portfolio investors (FPI) amid geopolitical concerns, weak quarterly profit growth and regulatory lockdowns coming into force.

FPIs have a net worth of shares sold ₹88,826.75 crore for the month to October 25, according to provisional data from NSDL and BSE. While domestic institutional investors (DII) made net investments ₹97,090.83 crore over the same period, the downtrend is likely to continue due to a variety of reasons, although a rebound is possible after four consecutive weeks of decline.

“A confluence of factors has caused the pullback this month,” said Nilesh Shah, MD, Kotak Mahindra AMC.

“Chief among them is the intensity of FPI selling, which encourages buying DII at lower levels in cash, stock margin collateral for derivatives trades is being capped by regulators, margin trading (MTF) trades are being liquidated as margin requirements are due to price corrections, “high estimates correcting earnings disappointment in the second quarter of FY2025, as well as geopolitical factors such as the outcome of the upcoming US elections and rising US bond yields despite Fed rate cuts likely driven by rising fiscal deficits,” Shah added.

A review of 637 companies’ performance for the second quarter of fiscal 2025 shows a 0.6% year-over-year decline in net income and a sequential decline in net income of 5.13%. ₹1.96 trillion. In the year-ago quarter, net income grew 49% year-on-year and 3.9% year-on-year, respectively. ₹1.97 trillion

Apart from FPIs redirecting funds to China from India following rate cuts and fiscal stimulus to support the world’s second-largest economy, rising bond yields in the US, which faces a widening fiscal deficit, are leading to FDI outflows from emerging markets like India.

Although the US Federal Reserve cut its key rate by 50 basis points to a range of 4.75-5% on September 18, the US 10-year yield rose from 3.7% on that day to 4.2% on October 25 amid fears caused by inflation. printing money to finance the $35.8 trillion national debt.

“Rising US bond yields are dampening sentiment in emerging markets such as India, which is also closely watching the US presidential election results,” said G. Chokkalingam, founder of research firm Equinomics.

Chokkalingam forecasts a further decline in market capitalization of Indian equities of 5-10% until the results of the US presidential election are known, with a rebound punctuated by a month-long pullback. However, he warns that any escalation of war in the Middle East could throw the “calculus” out of whack.

India’s market capitalization fell by ₹37 trillion ₹So far this month, FII sales in the cash segment have stood at $438.09 trillion.

In the index futures segment, retail traders as well as FPIs and DIIs are net short while retail HNIs are net long or bullish. FPIs were collectively net short index futures contracts of 129,477 contracts, proprietary traders were net short of 62,561 contracts and DIIs were net short of 54,577 contracts, while retail companies/HNIs ​​were collectively net long of 246,615 contracts, underscoring the caution on market as Nifty closed below 20 this week – weekly average 24,702.

In addition to this, the NSE rule excluded 1,010 shares out of 1,730 that could be used as margin or collateral for cash trading in the cash market segment under the brokerage margin trading system and as tokens for derivatives. The NSE Clearing Corporation has given its members until the end of October to exchange these shares. This is believed to be one of the reasons why investors sell stocks that cannot be used as margin.

“Since investors cannot use such shares as margin for their trades, some people think this may lead to them being sold,” said Mohit Mehra, vice president of primary markets and payments at Zerodha. “This change could mean some selling pressure, but since there are many factors that go into owning a stock, the biggest of which is confidence in the stock, it’s not easy to draw a direct link between the two.”

Chandan Taparia, senior vice president (technical and derivatives research), Motilal Oswal, pegs the short-term range of Nifty at 23,750-24,650.