Downward Spiral Spoils The Festive Mood

If the FII sell-off continues at the current pace, the total annual outflow could easily exceed the 2022 record of ₹278,000 crore, which was the highest in the past 15 years 

The markets faced a five-day losing streak as foreign institutional investors (FIIs) persisted with heavy selling in Indian equities, shedding around ₹42,000 crore over the fortnight and pushing the year-to-date FII sell-off to a notable ₹225,000 crore. On the other hand, domestic institutional investors (DIIs) continued to play the role of market saviours, injecting ₹39,300 crore, which helped slow the decline in benchmarks. Despite this support, the indices extended their fall from the previous fortnight, albeit at a milder pace.

They dipped by 2-3 per cent compared to the steeper 5-6 per cent drop seen earlier. Meanwhile, the broader market faced intensified selling pressure, with the BSE Small-Cap index and the BSE Mid-Cap index plummeting by 7.53 per cent and 6.16 per cent, respectively, in just two weeks. All the sectoral indices finished the fortnight in deep red, with the exception of the banking sector, where BSE Bankex experienced a marginal decline of just 0.5 per cent during the same period.

The primary driver of upbeat investor sentiment towards banks was the robust top-line and bottom-line growth reported by most banks, although concerns grew over the rising nonperforming assets (NPAs) linked to unsecured loans and declining asset quality. The automobile, oil and gas, metals and power sectors bore the brunt of the damage, with the sectoral indices tumbling 8-9 per cent each as FIIs withdrew a significant portion of their investments from these areas.

Disappointing Quarterly Results from leading players across these sectors failed to ignite investor optimism, which might have alleviated some of the selling pressure. Oil marketing companies, notably Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL), reported steep year-on-year net profit declines of 98 per cent and 72 per cent, respectively, citing reduced refining margins alongside falling international crude and product prices.

JSW Steel posted an 11 per cent decline in revenue, significantly affected by a sharp reduction in exports, while its net profit plummeted 84 per cent year-on-year. Similarly, Coal India saw a 22 per cent drop in net profit, largely due to reduced coal off-take impacted by a strong monsoon during the quarter. Experts suggest that power companies are likely to see limited growth in Q2FY25 as the monsoon season has traditionally curbed electricity demand, leading to lower power generation levels.

So far, over 30 per cent of India Inc. companies have declared negative profit growth in their Q2FY25 results, with aggregate revenue and net profit growth at 12 per cent and 8 per cent, respectively. Experts predict a revenue growth rate of 5-7 per cent year-on-year for Q2FY25, marking the slowest growth rate seen in the last 16 quarters. Do you think the Q2 results will uplift the market? Investors are optimistic that there may be a change in the scenario in the coming quarter and the earnings growth will be impressive post the festive season