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OP Thomas: FIIs are maintaining a bearish outlook in India
November 28, 2016
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Exclusive to The Gulf Today

After witnessing volatile swings till Thursday, the expiry day of November F&O series, equity benchmark indices registered modest gains on Friday-the first day of the new December F&O series.

Over the weekend, the BSE Sensex settled above the psychological 26,000 level while Nifty-50 ended above the crucial 8,000 mark.

The BSE Mid-Cap and the Small Cap indices, however, outperformed the Sensex after they appreciated 0.91 per cent and 1.33 per cent respectively.

The Sensex closed the week with a 166.10-point gain or 0.63 per cent at 26,316.34 while Nifty ended up by 40.20 points or 0.49 per cent at 8,114.30. The markets look as though it is on an uptrend, but it appears the up-move on the last trading day, Friday, was more of a short-covering and some new money entering the markets before the downtrend resumes.

Investors

Going by the exchange data, foreign institutional investors (FIIs) are still maintaining a bearish outlook. Last week they sold a little over Rs54 billion worth of equities in the cash segment.

So far, since the beginning of this month, their net sales have been about Rs153 billion. In October too they remained net sellers at Rs50 billion.

In the debt segment they have been exiting with net sales since the beginning of November being over Rs150 billion.

Market players are seeing this as a cause of worry as they feel FIIs are liquidating their positions and could be looking at US markets once the Fed hikes interest rates in mid-December.

Domestic institutional investors (DIIs) on the other hand have been net buyers of equities in the cash segment, though much lower to offset the sales of FIIs.

Since the beginning of November, their net purchases have Rs 110 billion versus the FIIs sales of Rs153 billion.

With demonetisation of Rs1000 and Rs500 currency notes, the domestic markets are concerned about the drop in corporate earnings till the fiscal year end March 2017. There has been a virtual freeze in cash withdrawal of savers and banks are now flush with liquidity which is exerting a downward pressure on interest rates while inflation remains under pressure though it eased to 4.2 per cent in October from previous month’s 4.4 per cent.

Inflation

This was largely due to easing of food inflation, but latest reports show food inflation could rise as there were pockets of food growing areas showing a drop in production.

The Reserve Bank of India (RBI) hence has announced a 100 per cent hike in cash reserves banks maintain with it on net deposits garnered between Sept.16, 2016 and Nov.11 2016.

This move, though temporary, will ensure that the increase in bank deposits due to the limit in cash withdrawals of savers following the demonetisation move does not artificially bring down interest rates.

The RBI will review the situation on Dec.9.

For the coming the macroeconomic data, the second quarter corporate results, FII investments, announcement, if any, from the new US President Donald Trump trend and the global crude oil price movements will set the trend.

Trump takes his oath on Jan27 next year (2017) so only speculation over his policies will dominate the markets till then.

On the domestic front, auto and oil companies will be the focus.

The developments in the ongoing Parliament winter session will be keenly monitored as the government discusses the finer aspects of the goods and services tax before its implementation in April 2017.

The release of GDP data this week for the third quarter will also influence market moods.

For the week ahead, Nifty needs to pierce 8175 for an upward move to 8300, on the downside 7900 is a crucial support level, if that is breached another 200-point fall is not far away.


THE AUTHOR
IS A BUSINESS ANALYST COVERING

INDIAN MARKETS, BANKING AND ECONOMY

 

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