Indian Market Weekly Wrap: From Key Macro Drag Factors to Major Weekly Bulk & Block Deals

The selling pressure on Dalal Street intensified on Thursday, October 1, as the Nifty 50 fell below 22,300 Intraday and the Sensex lost nearly 900 points intraday before finding late support to close at 71,909.70. The Nifty 50 closed at 22,421.95 (down 198.50 points).

The decline extended the market's losing run to four consecutive sessions and kept the benchmark indices on course for an eighth straight weekly fall, marking the longest weekly losing streak for Indian markets in nearly 25 years.

The recent sell-off was not driven by a single factor, as persistent foreign selling, elevated US Treasury yields, pressure on the rupee, weakness in auto stocks, and a deterioration in technical indicators combined to keep investors cautious ahead of today's Gandhi Jayanti market holiday.

Broader markets felt the pain as well, with the Nifty Midcap 100 dropping 2.6 per cent and the Nifty Smallcap 100 falling 2.3 per cent over the shortened week, while the India VIX volatility index jumped over 9 per cent in a single session.

FII Selling Remains The Biggest Overhang

Foreign investors remain the heaviest drag on Indian equities as they continue dumping shares to rebalance global portfolios. FIIs pulled a net Rs 9,484.22 crore out of the cash segment on Thursday alone. Coming on top of the Rs 20,000 crore-plus offloaded over the previous two sessions, that pushes three-day foreign outflows to nearly Rs 29,613 crore.

September was particularly rough for foreign flows. FPIs dumped roughly Rs 51,999 crore in the secondary market during the month, pushing total year-to-date foreign equity sales to a record USD 27.8 billion.

Domestic institutional investors attempted to cushion the fall, stepping in with a net buy of Rs 10,041.84 crore on Thursday after absorbing Rs 11,271.73 crore on Wednesday. Still, steady Mutual Fund and SIP inflows simply could not match the wall of foreign paper hitting the market. Interestingly, even as foreign funds dumped secondary market Large-Caps, they remained selective net buyers in primary markets and IPOs where valuations offered a better margin of safety.

US Bond Yields Are Creating Another Headwind

The unrelenting rise in US Treasury yields has added another layer of pressure across emerging markets by altering global cost of capital calculations. The 10-year US Treasury yield moved up near 5.34 per cent, while the 30-year yield crossed 5.6 per cent, keeping benchmark risk-free rates at their highest levels since 2007.

Elevated risk-free returns in the United States compress the equity risk premium for holding emerging market assets, incentivizing international asset managers to trim exposure to relatively expensive Indian stocks in favor of dollar-denominated fixed income. This tightening of global financial conditions triggered a broad risk-off tone that left high-valuation domestic sectors particularly vulnerable to institutional reallocations.

Rupee Slips Past Rs 96 Against Dollar

The Indian rupee came under severe structural pressure yesterday, breaching the psychological Rs 96 per US dollar threshold during Thursday's trading to trade between 96.31 and 96.48. Persistent capital outflows, a strengthening Dollar Index hovering near three-month highs, and an expanding monthly trade deficit continue to weigh heavily on local currency sentiment.

A weaker rupee is particularly critical for India given its heavy Reliance on imported crude oil and electronic components, as sustained currency weakness inflates the domestic cost of landed imports, feeds into imported headline inflation, and compresses corporate operating margins across import-heavy sectors.

Nifty IT Outperforms Other Sectors

Amid widespread capitulation across domestic equities, the technology sector emerged as a solitary harbor of resilience, with the Nifty IT index rallying 2.17 per cent on Thursday. The sector benefited directly from structural foreign exchange tailwinds as the Indian rupee traded near multi-month lows around the 96 per dollar threshold, inflating the local currency value of dollar-denominated tech export revenues and expanding prospective operating margins.

Gains were broad-based across software heavyweights and tier-2 providers alike, led by Mphasis climbing over 4 per cent, Coforge rising nearly 4 per cent, and Infosys advancing 2.42 per cent.

Other major sector bellwethers including Tata Consultancy Services, HCLTech, and Tech Mahindra also posted solid gains ranging between 1.4 per cent and 1.7 per cent, as institutional investors rotated capital into defensive export plays ahead of the Q2 earnings season opening.

Auto Stocks Become A Major Drag

Thursday's market decline was heavily amplified by widespread liquidation in auto shares following the release of September vehicle dispatch figures. The Nifty Auto index plunged 3.46 per cent, making it the worst-performing sectoral index during the session.

Bajaj Auto shares fell over 7 per cent as domestic sales dropped 9 per cent year-on-year, overriding a modest 5 per cent rise in total dispatches. Mahindra & Mahindra fell nearly 3 per cent following a 7 per cent decline in export volumes, while Maruti Suzuki and Eicher Motors also faced aggressive selling pressure.

Beyond autos, the selling was widespread across cyclical and rate-sensitive pockets, with Realty dropping 1.5 per cent, Media falling 1.45 per cent, and Metals declining 1.1 per cent. Information Technology was the sole major sector showing resilience, with the Nifty IT index rallying 2.17 per cent as export-oriented software heavyweights like Infosys, TCS, and HCLTech benefited from the tailwinds of a weaker domestic currency.

Institutional Activity Highlighted By Major Bulk and Block Deals

In prominent foreign fund reshuffles, Pabrai Wagons ETF acquired 1,45,72,000 shares of Edelweiss Financial Services alongside 5,20,420 shares of Nuvama Wealth Management from Pabrai Wagons Fund.

In the private equity space, INRE Fund II picked up 23,25,000 shares of Nirlon from promoter Nihar Nandan Nilekani, while Morgan Stanley Asia Singapore Pte bought 9,98,747 shares of Elevate Campuses.

Additionally, Growvia Trade Private Limited purchased 350,000 shares of Advance Agrolife from L7 Hitech Private Limited.

These large-scale exchanges demonstrate that while broad indices face foreign cash outflows, institutional investors continue to execute targeted portfolio adjustments and stake transfers in specific business groups. 

Crude Has Eased, But The Risk Has Not Disappeared

There is one macro factor that offered minor interim relief to domestic markets: crude oil prices backed off their recent peak levels. Brent crude futures slipped toward USD 97 to USD 98 a barrel on Thursday, down from recent spikes above USD 102, as traders weighed hints of potential US-Iran diplomatic dialogue against Middle East supply concerns.

However, oil remains significantly elevated compared to early-year averages, and a sustained period of expensive crude above USD 95 per barrel threatens to widen India's current account deficit, keep the rupee under pressure, and limit the Reserve Bank of India's flexibility ahead of its upcoming Monetary Policy Committee meeting.

Disclaimer: The article is for informational purposes only and not investment advice