Mumbai: Weak global cues snapped the Indian benchmark indices’ five-day climbing streak on Friday, accompanied by fear gauge India Vix rising the most in almost two months, leading to Indian investors turning poorer by ₹4.78 trillion.
Displaying signs of rising investor uncertainty amid increasing recessionary fears in the US and worsening geopolitical risks in the Middle East, the Nifty plunged 1.17% to 24,717.7 and the Sensex, 1.1% to 80,981, the steepest fall since the general election results day on 4 June.
On Friday, FIIs (foreign institutional investors) sold shares worth a provisional ₹3,310 crore, and DIIs (domestic institutional investors) purchased a provisional ₹2,966 crore, showed BSE data, but experts said likely selling by retail investors in the secondary market soured sentiment.
Indian investor fears on Friday were underscored by the India Vix, which rose by 11.4% to 14.41, the most since 4 June when the fear gauge rose by 27% to 26.75 after a weaker-than-expected performance by the BJP-led NDA at the hustings.
Andrew Holland, chief executive of Avendus Capital Public Markets Alternate Strategies, expects the volatility in Indian markets to increase, especially on supply disruptions to crude oil on rising tensions in the Middle East.
Gaurang Shah, senior vice-president at Geojit Financial Services, expects the Nifty to trade in a 24,600-25,400 range in the short term. But if geopolitical tensions increase, Indian stocks could be in for a “spot of bother”, he added.
Weak American signals
US equities could remain under pressure for a second straight day with non-farm payrolls indicating that 114,000 jobs were added last month against estimates of 176,000, and the unemployment rate rose to 4.3% from 4.1% in June, the highest since November 2021.
S&P 500 futures were trading down 1.67%, following an overnight fall of 1.37% in the spot S&P 500, indicating more trouble for the US markets, which could spill over to other markets next week.
Earlier on Thursday, US manufacturing contracted to 46.8 in July , the lowest level in eight months and jobless claims last week rose to an 11-month high at 249,000, which affected global equity indices, including India’s on Friday.
The Indian reaction
“Investors globally have shifted tack to a risk-off mode and India’s investors aren’t an exception,” said Holland, adding that the markets had not priced in a hard landing in the US.
“Even if the Fed cuts interest rates in September, it would take time for the same to be transmitted to borrowers so the risk-off could continue,” Holland said. “Added to that is imminent retaliation by Iran on Israel for the killing of a Hamas leader in Tehran.”
The Nifty has risen by 12.94% since 4 June to Friday’s close while the Sensex has rallied 12.4% over the same period, driven by FII inflows of ₹57,903 crore and DII inflows of ₹51,782 crore.
“Indian equities saw FPI outflows this week,” said Shrikant Chouhan, head equity research, Kotak Securities. “Stock-specific action based on Q1FY25 earnings will continue for the next couple of weeks. Recent weakness in global equity markets will be closely monitored.”
Bracing for likely persistence of risk-off sentiment in the weak ahead, India’s option sellers created huge bearish positions in options expiring on 8 August. The put-call ratio fell to 0.64 on Friday from 0.99 a day ago. This shows that for every 100 calls written by options traders, only 64 puts were sold.
“Sellers seem reluctant to sell puts on index as they fear markets could correct more in the coming week,” said S.K. Joshi , executive director at Khambatta Securities.
