D-Street rebounded sharply amid rising hopes for rate cut, positive global cues. What to expect from FIIs?

The Indian equity benchmarks ended the last week with a gain of around two percentage points as the consumer inflation (CPI) data came in lower than the previous month increasing hope for rate cuts at the domestic level. Retail inflation also eased to an 11-month low of 4.83 percent in April against 4.85 percent in March 2024. 

The BSE Sensex surged 1,341 points, or 1.85 percent, to 74,006 during the week ended on May 18. The Nifty gained 447 points, or 2.03 percent, to 22,502. Sector-wise, the BSE Capital Goods index was the top performer surging 10 percent, followed by a 7.6 percent gain in the BSE Realty index and a 7 percent rise in the BSE Power index. The BSE Metal index and BSE Oil & Gas index also jumped by 5.8 percent and 4 percent, respectively. 

Forty-two stocks in the Nifty 50 index delivered positive returns for investors during the week. Mahindra & Mahindra emerged as the top gainer with a weekly gain of 14.2 percent on the back of strong Q4 results. Larsen & Toubro, Adani Ports, Hindalco Industries were the other top performers with gains of 5.9 percent, 5.7 percent and 5.5 percent, respectively. Cipla, Hero MotoCorp and Coal India also advanced by over 4 percent.  

On the other hand, Tata Motors, Bajaj Auto, and Dr Reddy's Labs declined by 9 percent, 1.9 percent and 1.7 percent, respectively.  

FPI outflows: Sunil Damania, Chief Investment Officer of MojoPMS, said there are two main reasons behind the flight of foreign portfolio investors (FPIs) in FY25. First, the uncertainty around the ongoing Lok Sabha elections. FPIs generally don’t like uncertainty; they prefer to play it safe and lock in the profits they made last year. Second, the market valuations are quite high. 

“We anticipate the market remaining volatile after June 4. Once the election concludes, all eyes will be on the July budget announcement, triggering more speculation and potential market swings. The high market valuations could act as a barrier to significant market gains, but there's also a possibility of a downturn. Despite the current short-term uncertainty, we maintain a positive outlook for the Indian equity market and project strong returns over the next three to five years,” Damania added. 

Market macros: “The domestic market has sustained its recovery momentum from recent lows, bolstered primarily by positive signals from its global counterparts and better-than-anticipated earnings from index heavyweights. Throughout this week, mid- and small-cap stocks outperformed the broader index, despite concerns over high valuations,” Vinod Nair, Head of Research at Geojit Financial Services. 

The broader market remained positive, driven by persistent buying in heavyweight sectoral stocks, he added.  

Furthermore, a moderation in India’s CPI and lower-than-expected inflation figures from the US Fed have stimulated investor confidence. Investors are expressing optimism regarding potential interest rate cuts in 2024, supported by favourable US consumer inflation data and improved jobless claims figures, which have also contributed to a surge in gold prices and strengthened the stock market rally, said Nair. 

However, uncertainties persist regarding the timing of US Fed rate adjustments, with market participants eagerly awaiting clarity from an upcoming Fed chair speech.  

“The release of PMI data for May from both the US and India next week will be closely monitored for further market insights. Amidst ongoing uncertainties surrounding election results and quarterly earnings, we anticipate continued volatility in the near term,” according to Nair. 

Nifty outlook: Rupak De, Senior Technical Analyst at LKP Securities, said the Nifty has remained within the channel closing above 22,500 for the first time in several days. However, a small-bodied candle on the daily chart suggests very little about the future direction of the price. “Additionally, heavy writing is visible in both CALL and PUT at the 22,500 strike indicating a sense of inflection. Therefore, traders need to be watchful in the initial hour to confirm any directional move. Support is visible at 22,400. On the higher end, a sustained move can take the index towards 22,600 and higher in the short term,” De said.