Foreign institutional investors (FIIs) remained net sellers in Indian equities for the 10th consecutive week, as benchmark indices extended their losses amid rising Brent crude prices, weak global cues and persistent geopolitical uncertainties. While the pace of foreign selling moderated, a sharper correction in mid- and small-cap stocks underscored the fragility of market sentiment.
The Nifty 50 declined in all four sessions of the holiday-shortened week, hitting an intraweek low of 22,372 on Friday before closing 2.4% lower at 22,600. The Bank Nifty fell 2.8%, while the Nifty Midcap 100 and Nifty Smallcap 100 plunged 5.6% and 7.3%, respectively, as selling pressure intensified beyond frontline stocks.
FIIs sold equities worth a net Rs 26,970 crore during the week, significantly lower than the Rs 89,910 crore in net outflows recorded in the previous week. Foreign investors turned net buyers in two of the four sessions, suggesting some moderation in selling pressure.
Domestic institutional investors (DIIs), meanwhile, remained net buyers for the 10th consecutive week, stepping up purchases to Rs 1,09,420 crore and absorbing a substantial portion of the foreign outflows.
On a month-to-date basis, FIIs have sold equities worth a net Rs 5,14,660 crore, while DII purchases have reached Rs 5,91,100 crore. Despite sustained domestic institutional support, the Nifty remained under pressure as concerns over crude oil prices, inflation and global monetary policy weighed on sentiment.
FII selling versus DII buying: What do the flows indicate?
The divergence between foreign and domestic institutional flows remains pronounced. While FIIs have continued to sell for 10 consecutive weeks, DIIs have consistently stepped up their purchases, helping cushion the impact of sustained foreign capital outflows.
Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking, said the moderation in FII selling offered some comfort, although elevated crude prices and weakness in the broader market continued to pose downside risks.
“Going ahead, the steady moderation in FII selling offers some comfort, though elevated crude and sharp broader-market weakness keep the downside risk alive,” Mukherjee said.
However, the sharp correction in mid- and small-cap stocks indicates that domestic buying has not been enough to prevent broader market weakness. Valuation concerns, rising yields and geopolitical risks have added to the pressure, particularly in segments that had attracted stronger investor participation.
Vinod Nair, Head of Research at Geojit Investments, said rising crude prices had heightened inflation concerns, while higher domestic yields had put equity valuations under renewed scrutiny.
He noted that mid- and small-cap stocks bore the brunt of the correction as valuation concerns and the unwinding of leveraged positions accelerated losses. Large-cap equities, by comparison, held up relatively better.
What could trigger a reversal in FII flows?
Global monetary policy, crude oil prices and geopolitical developments remain key determinants of foreign investor sentiment towards Indian equities.
Investors will track the US Federal Reserve’s FOMC policy decision and the Bank of Japan’s rate decision in the coming week. The European Central Bank’s policy decision will also be in focus as markets assess how major central banks balance inflation risks against economic growth.
Mukherjee said US GDP data, movements in Brent crude prices, developments in the US-Iran and Russia-Ukraine conflicts, and quarterly earnings would remain important drivers of investor sentiment.
Nair also highlighted the interplay between geopolitical developments, crude oil prices, the rupee and domestic inflation expectations. With yields remaining elevated, foreign flows could remain subdued until greater clarity emerges on the global macroeconomic outlook.
Domestically, the upcoming Index of Industrial Production (IIP) data will offer a reading on industrial activity. Progress in India-US trade negotiations and the breadth of quarterly earnings will also influence market direction.
Sectoral performance remained uneven during the week. Nair said IT was the only pocket of resilience, recovering from early selling to end largely unchanged amid improving earnings visibility and renewed investor interest.
Consumer durables, metals and realty faced heavier selling pressure as concerns over input costs and margins resurfaced.
He added that stock- and sector-specific opportunities were likely to dominate in the near term, with earnings visibility and valuation comfort becoming increasingly important for investors.
Nifty outlook: Will selling pressure persist?
The Nifty’s decline across all four trading sessions has weakened its near-term technical outlook, with key moving averages and support levels coming under pressure.
Vatsal Bhuva, Technical Analyst at LKP Securities, said the index had slipped below its 200-week moving average (WMA) on the weekly chart and its 20-day moving average (DMA) on the daily chart, signalling a deterioration in the technical structure.
“The lower-high formation remains intact, indicating that the recent upmove was merely a pullback or relief rally. A hidden bearish divergence on the RSI further signals the possibility of downtrend continuation,” Bhuva said.
He identified 22,200 as a crucial support level and warned that a decisive break below it could trigger another round of selling. Immediate support is placed at 22,500, while resistance is seen in the 22,700-22,800 zone.
Bhuva advised traders to remain cautious, keep positions light and monitor key technical levels closely. Brent crude prices will also be an important variable, he said, noting that a rise above $110 a barrel could further weaken market sentiment.
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