The Nifty 50 fell for the seventh week consecutively, matching its losing streak during the Covid crash of 2020, as the prolonged conflict between the United States and Iran kept oil prices high and fuelled a global bond sell-off that has made US government debt a better bet than Indian stocks on paper.
The index closed at 23,140.50 on Friday, down 0.9 per cent for the week. The yield on the 30-year US Treasury bond touched 5.48 per cent, its highest since 2004, and the 10-year note reached 5.23 per cent. At 5.11 per cent, the Nifty’s earnings yield is now below both. Brent went up to $105 this week in intraday trade, well above the $80-plus that Bank of America (BofA) Global Research thinks oil is worth this year. Fund managers and analysts who expected a recovery a week ago have turned cautious.
All eyes are now on upcoming developments in the West Asia war, which will determine whether policymakers have to jump in to calm interest rates and even oil prices. BofA’s Bull & Bear Indicator eased to 9.3 from 9.5 last week, still triggering a “sell” rating despite edging towards an “extreme bullish” stance, as the report flags a sell on indications above 8.0.
“I think all markets are selling off. India is just one of the big pieces there which stands out, and I don’t think this is going to reverse. I think investors have to brace for corrections,” said Abhay Agrawal, founder and fund manager, Piper Serica.
Bernstein notes that foreign institutional investors have net invested just $4 billion in Indian equities over the past decade against $300 billion from domestic institutions, withdrawing $40 billion in the last two years alone. It expects flows to stay “flat to modestly positive” over the next 12 months given elevated relative valuations, rupee weakness and muted earnings revisions.
Many fund managers believe that the Indian market is a ‘stock pickers’ market’, and that FIIs are showing interest in select firms where there is visibility of earnings but opportunities are thin. “They are investing but are being selective. It will be time till they see some serious growth opportunity in the largecap space”, said Anish Teli of QED Capital Advisors.
Brokerage reports this week converged on the Insurance Regulatory and Development Authority’s September consultation paper, “Recalibrating Economics of Insurance Distribution”, which proposed commission caps and a tighter expense of management (EoM) glide path (15 per cent of premium in two years, 12.5 per cent in five). They saw this as a near-term driver for the sector, layered on top of a broader market still short of foreign capital.
Motilal Oswal expects the proposed norms to lift the value of new business margins, which represent the present value of future profits expected from new insurance policies sold during a given period. It added that combined ratios over the medium-term though growth may slow near-term, and named SBI Life, Canara HSBC Life and LIC as the best placed.
Kotak Securities called the insurance sector “attractive,” terming the impact of the proposed norms “manageable” for insurers but a “tough patch” for distributors. It kept SBI Life, HDFC Life, ICICI Lombard and Star Health as its top picks. Centrum and Emkay both flagged SBI Life and LIC as largely compliant with the proposed norms already.
Technical setups also point to further downward risk. “The technical chart structure remains negative as long as the index trades below the 23,450 spot level on a closing basis. A decisive close below 23,000 spot levels would be a negative development that could drag the index lower toward the 22,500-22,400 spot levels in the near term,” said Vipin Kumar, AVP of derivatives and technical research at Globe Capital Market.
