Markets Continue to Take a Beating
The May futures and options series has been tremendously tough for the bulls and they would be happy to see the expiry of this series. In fact, it’s really been treacherous selling in May and ‘go away’ has never been proven more right than this time. The Nifty has recorded its worst fall in the month of May with still a few more days to complete since 2012, plummeting about 5.6 per cent. The reason for this sharp fall is relentless selling from the FII camp, which continues to be the biggest negative catalyst for Dalal Street. FIIs have sold shares worth over Rs 50,000 crore in May, which is their second-biggest monthly selling figure after March 2020.
March 2020 was the month that the corona virus took a firm grip on the world. Most importantly, the FIIs have pulled out over Rs 200,000 crore from the Indian markets in the first five months of 2022. With this persistent selling by FIIs, the foreign funds’ ownership in domestic equities fell to the pre-pandemic lows and hit a multi-year low of 19.5 per cent in March this year in NSE 500 companies, as suggested in a note by BofA Securities. Moreover, this severe selling by FIIs is clearly reflected in the way the markets have overall performed.
So, far in the month of May, the Nifty 500 index is down by over 7 per cent, Nifty Mid-Cap has plunged over 9 per cent and it was a nightmare of a month for Nifty Small-Cap as it logged a double-digit fall of over 15 per cent, thus marking a fresh 52-week low. The biggest news of last week was the move by the Union Government to bring down the fuel rate in India by slashing the central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. And, as per the finance minister’s statement, it will have revenue implication of around Rs 1 lakh crore per year for the government.
After this move, there were murmurs that the government may borrow more than what has been budgeted for this fiscal, reduce revenue expenditure, or do both, as the duty cuts and subsidy hikes were expected to upset its fiscal math. However, on Wednesday there was a clarification that the centre is unlikely to raise its gross market borrowing for FY23 from the budgeted level and this is because it is confident of generating extra revenue to make up the shortfall. In the past couple of years, Nifty IT emerged as the pied-piper of the market along with other sectors that came out with flying colours
But as per the sentiments of the market participants, this leading sector, which created a bull run from the lows of March 2020 to the highs of October 2021, is now failing to find any kind of support. Moreover, the selling in this sector has been from the left, right and centre! As a result, the Nifty IT index is down by 11.5 per cent on MTD basis and it has slipped below the mark of 28,000. From its all-time high, the index is down by 30 per cent, but despite this severe correction from the highs, if you look at the valuations, IT stocks are still trading at a premium compared to the median valuation and mid-cap IT stocks are still trading at a premium compared to large-cap IT stocks
To come to the most important question in the minds of investors, when is this rout going to end? Nifty made an all-time high in the month of October 2021 and thereafter it has been forming lower highs and we are nearly into the seventh month of the decline. A study suggests that an average length of decline or correction is about one year and so a lot of time damage has already been done. However, talking about the price damage, it a tough call to make but the worst of the price damage is reserved for the last of leg of the phase. Technically, the index has been trading in the broad range of 15,735-16,414 since the second week of May and once the index breaches this range on either side, expect a swift move of 400-500 points in the direction of breakout. Till then, caution will continue to be the buzzword.
