Gift Nfity indicates a flat to negative start for Nifty futures on Monday. Analysts expect the market to witness lackadaiscal activity in the curtailed trading week. Markets will remain closed on Wednesday due to Maharashtra state election.
According to analysts, the market may open weak but may see a recovery during the later part of the day, as FPIs may slowdown their selling activity.
Last week, CLSA said it is reversing its trade that saw a tactical deployment of its over-exposure to India towards China at the start of October. The brokerage will go back to being 20 per cent overweight on India after reducing its India overweight to 10 per cent. China will return to a benchmark exposure from 5 per cent overweight.
India appears among the least exposed regional markets to Trump’s adverse trade policy, the brokerage said and may offer a relative oasis of forex stability amid a stronger dollar, it added.
Dr. Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital, said: following the US election results, India’s political focus is shifting to key state elections (Maharashtra, Jharkhand, and Delhi) and the anticipated Union Budget 2025.
The Indian equity market has corrected by 9.5 per cent from its recent highs due to slowing urban consumption, especially in relation to products from the large FMCG players, muted demand in key sectors such as autos, staples, and utilities, as well as sustained foreign institutional investor (FII) outflows.
According to Gupta, FII selling is not India-centric but a global phenomenon due to US elections.
Nifty futures at Gift City are currently ruling at 23,510, compared to Nifty futures, which closed at 23,601.70 on Thursday.
Vipul Bhowar, Senior Director Listed Investments, Waterfield Advisors, said: Several factors have led to the selling activity by FIIs: weak earnings, high valuations compared to other markets, and global economic influences such as rising US bond yields. While some of the selling by FIIs in the secondary market is being counterbalanced by buying in the primary market—through large initial public offerings like those from Swiggy and Hyundai—it is expected that FIIs will reduce their selling as we near the end of the calendar. year. Fresh allocations or significant investments are likely to occur once there is greater clarity regarding the Trump administration’s policies.
“FPIs this calendar year have been reducing their weightage in mature sectors when growth would be closer to our nominal GDP and allocating capital to high-growth businesses. For example, in the financial sectors, FPIs have been increasing allocation in Capital Market themes like Asset management, exchanges, and healthcare,” he added.
Although FII holdings have declined by only 2.5 per cent since September, the sentiment has turned cautious, said Gupta. “Keep in mind that the FII outflows were across global markets due to the US elections. Majority of the developed and emerging markets are down by around 3-10 per cent over the last one month. China has fallen 20 per cent from its recent peak in October while India is down around 9 per cent from its recent peak. Strong domestic mutual fund inflows reflect resilience and confidence among Indian investors, providing stability amid volatility,” he said.
“If the FII outflows stop, even without new inflows starting, the domestic inflows themselves are likely to cause a market upswing. Also, as the Trump administration policies start getting clarity the FII inflows are likely to come back to developed and emerging markets,” he added.
According Motilal Oswal Financial Research, the corporate earnings scorecard for Q2-FY25 has shown weakness, but excluding commodities, it has been broadly in line.
Consumption has emerged as a weak spot, while select segments of BFSI are experiencing asset-quality stress. Weakness in government spending has also been one of the factors driving moderation in earnings, it said. “After a flat H1-FY25, as the government spending revives in H2-FY25, this should augur well for corporate earnings along with a good kharif crop and improving rural demand,” it said.
Nifty FY25 EPS has seen another 1 per cent cut after a 4% cut in 2QFY25 preview. Overall, Nifty EPS has seen about 7 per cent downward revision in the last six months, which has reduced the expected FY25 earnings growth to just 5 per cent, the weakest since FY20. The Nifty is trading at a 12-month forward P/E of 20x, near to its long-period average (LPA) of 20.5x. Despite the recent 10 per cent correction from the highs, the broader markets are still trading at expensive valuations (NSE Midcap 100 at ~29x forward P/E). We had made several significant changes in our model portfolio in the 2QFY25 preview, where we raised the weights in BFSI, Technology, and Healthcare with a distinct bias towards large-caps. Our model portfolio reflects our conviction in domestic structural as well as cyclical themes. We are OW on IT, Healthcare, BFSI, Consumer Discretionary, Industrials, and Real Estate. In contrast, we are UW on Metals, Energy, and Automobiles,” it said.
Meanwhile, equity markets across Asia-Pacific region are mixed. While Japan markets are down by 0.6 per cent, Hong Kong is up by about 0.30 per cent. Korea’s Kospi surged over 2 per cent but Taiwan slipped 0.50 per cent.