After The Spike Comes The Correction

After making sizeable investments in the Indian market, which was the main driving force behind the robust rally, FIIs have now started to turn into net sellers after a long period of time

The Indian benchmark indices experienced a sharp rally, soaring around 12-13 per cent during the April-July period as foreign investors persisted in demonstrating faith in Indian equities while recognising the Indian market to be stable and reliable due to the country’s improving macroeconomic outlook and the anticipated stronger corporate earnings’ season. However, the indices are witnessing a correction as foreign investors started booking profits after making sizeable investments earlier. 

Surprisingly, DIIs have switched to being net buyers over the past two weeks while FIIs were net sellers after a long period of time. In the last 15 days, FII outflow totalled ₹6,620.35 crore while DII inflow reached ₹10,851.12 crore. As a result, the BSE Sensex and Nifty 50 have declined 1.44 and 1.15 per cent, respectively, in the last two weeks. While defying the trend, broader indices significantly outperformed the main indices. The BSE Small-Cap index was among the Top Gainers, climbing 2.71 per cent while the BSE Mid-Cap index gained 2.08 per cent.

With gains of 5.69 per cent, the power industry continued to be optimistic and took the top spot among the sectoral indices. Shares of Adani Power soared more than 15 per cent following Adani Group’s announcement about commissioning of India’s first transnational power project to export electricity to the Bangladesh electrical grid. Shares of NTPC Ltd. and Tata Power recorded gains of 11 and 8 per cent, respectively. As the monsoon season began, healthcare stocks were seen rising as viral diseases surged, driving up pharmaceutical sales and the need for healthcare services.

Dr. Reddy’s Laboratories, apharmaceutical major, reported a robust quarter result, with profit after tax growing 46 per cent quarter-on-quarter. The BSE Bankex index tumbled more than 3 per cent as a result of a sharp decline in the banking and financial services stocks, which attracted the highest levels of foreign investment during the recent rally. Heavy selling pressure caused the shares of State Bank of India to plunge nearly 7 per cent over the fortnight. In the latest attempt to balance its books, the bank plans to sell nearly ₹96,000 crore worth of distressed loans to asset reconstruction firms. 

While customers are concerned about the rising cost of basic goods, there have been uncertainties in the fast-moving consumer goods (FMCG) sector. According to Morgan Stanley, India’sretail inflation is predicted to surge to 6.2 per cent at the end of the September quarter, with an increase in food prices serving as the main driver of this inflation hike. In other developments, the growth of India’s eight key infrastructure sectors accelerated to 8.2 per cent in June, the fastest rate in five months.