Foreign outflows, weak IT sector stocks weigh on benchmark indices

Sensex declines in 4 out of 5 sessions in the week, Nifty50 in 3 sessions

The benchmark indices declined on Friday because of a combination of weakness in information and technology (IT) sector stocks and selling by foreign portfolio investors (FPIs).

The benchmark BSE Sensex fell 389 points to end the session at 62,181.67, a decline of 0.62 per cent, and the Nifty ended the session at 18,496.60, a decline of 113 points or 0.61 per cent.

The Sensex declined in four of the five sessions this week, falling 1.2 per cent, while the Nifty declined in three sessions, falling 1.06 per cent in the week.

IT stocks fell on Friday after Credit Suisse warned of a correction amidst macroeconomic headwinds in the US. The brokerage noted that despite a correction, the valuations of Indian IT companies were at a premium to historical averages.

The Nifty IT index fell 3.14 per cent on Friday, and was the biggest loser among sectoral indices. The Nifty PSU Bank, Realty, and Metal also declined, falling between 1.1 per cent and 1.8 per cent on Friday.

FPI outflows throughout the week also weighed on investors’ minds. FPIs were net sellers in all five sessions this week. In fact, barring one session, FPIs have been net sellers in all the sessions so far in December, and net outflows stand at Rs 5,657 crore. The Rs 7,090 crore that domestic institutional investors pumped into equities during this period was not enough to lift the markets.

Analysts said there was some nervousness amongst FPIs ahead of the US Federal Reserve’s rate hike decision next week and warned investors against being too optimistic about risky assets in hope that the US Fed might shift to a hawkish stance. Having misjudged inflationary pressures last year central bankers would be circumspect regarding monetary policy, said market participants.

“There is a bit of profit booking by FPIs in December. Worries about recession and rate hikes have not really gone away. So there will be bouts of optimism followed by nervousness,” said Andrew Holland, chief executive officer of Avendus Capital Alternate Strategies.

Central bankers had for most of last year termed inflation a transitory phenomenon before prioritising the fight against price rise even at the cost of economic distress.

“Markets seem to be consolidating for the last few sessions as participants are reducing their position ahead of a crucial US Fed meeting next week. Further, FPIs have remained net sellers in December so far and added to the overall pressure in the market. We expect the consolidation to continue,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

About two-thirds of Sensex stocks fell on Friday. Infosys was down 3.15 per cent and contributed the most to the Sensex’s losses. The top five losers in the index on Friday are from the IT sector.

“We expect the weakness in tech stocks to continue on account of weak growth outlook. FMCG stocks are expected to do well on the back of a fall in commodity prices and improving demand,” said Khemka.

Six out of the top eight gainers on Friday were from the FMCG and pharmaceutical sectors. Reliance Industries fell 1.5 per cent.

The market breadth was weak with 2,391 stocks declining and 1,134 advancing on the BSE. The shares of Paytm’s parent One97 Communications rose 7.2 per cent after the company announced on Thursday that it was considering a buyback.