The benchmark Nifty50 has lost 6.3% to 24,180.8 so far this month, weighed down by record selling by foreign portfolio investors (FPIs) amid geopolitical concerns, tepid quarterly earnings growth and regulatory tightening that have entered into force.

FPIs have a net worth of cash shares sold ₹88,826.75 crore in the month to October 25, based on provisional data from NSDL and BVB. While domestic institutional investors (DIIs) invested net ₹97,090.83 crore in the same period, the downward trend is likely to continue due to a multitude of reasons, although a rebound is possible after four consecutive weeks of decline.

“A confluence of factors caused the withdrawal this month,” said Nilesh Shah, MD, Kotak Mahindra AMC.

“Chief among them is the intensity of FPI selling, which is driving DII buying at lower cash levels, collateral in the form of stock margin for derivatives trades being reduced by regulators, margin trading facility (MTF) trades being liquidated as margin calls are being made on price corrections, high valuations correcting on disappointing Q2FY25 earnings and geopolitical factors such as the outcome of the looming US election and rising US bond yields despite Fed rate cuts likely driven of the growing fiscal deficit,” Shah added.

A breakdown of Q2FY25 numbers of 637 companies shows a 0.6% year-on-year decline and a 5.13% sequential decline in net profit at ₹1.96 trillion. In the year-ago quarter, net profit rose 49% year-over-year and 3.9% sequentially to ₹1.97 trillion.

As FPIs shift funds to China from India following rate cuts and fiscal stimulus to prop up the world’s second-largest economy, rising US bond yields, which are facing a widening fiscal deficit, leads to FPI outflows from emerging markets like India.

Despite the US Fed cutting its key policy rate by 50 basis points to a range of 4.75-5% on September 18, the yield on 10-year US Treasuries rose from 3.7% that day to 4.2% on October 25 amid inflation concerns. by printing money to finance the $35.8 trillion national debt.

“The rise in US yields is boosting sentiment in emerging countries like India, which is also closely watching the outcome of the US presidential election,” said G. Chokkalingam, founder of research firm Equinomics.

Chokkalingam sees a further 5-10% erosion in the market capitalization of Indian stocks until the release of the US presidential election results, with an interspersed rebound after the month-long pullback. He warns, however, that any escalation of the war in the Middle East could throw the “calculations” out of whack.

India’s market capitalization has declined ₹37 trillion to ₹438.09 trillion so far this month on FII selling in the cash segment.

In the index futures segment, property traders along with FPIs and DIIs are net short while retail HNIs are net long or bullish. FPIs were net short index futures by 129,477 contracts, proprietary traders by 62,561 contracts and short DIIs by 54,577 contracts, while retail / HNIs were net long by 246,615 contracts on Friday, highlighting market caution with Nifty ending this week below 20. -week average of 24,702.

Additionally, an NSE rule excluded 1,010 shares out of 1,730 that could be used as margin or collateral for cash trading on the cash market segment under the broker margin trading mechanism and by token for derivatives. The clearing corporation of NSE has given time to members till the end of October to exchange these stocks. This is one reason that is believed to cause investors to sell stocks that cannot be used as margin.

“Since investors cannot use such shares as margin for their trades, some people believe this could lead to selling them,” said Mohit Mehra, vice president of primary markets and payments at Zerodha. “The shift may involve some selling pressure, but since there are several factors involved in owning the stock, the biggest of which is conviction in the stock, a direct relationship between them cannot easily be established. “

Chandan Taparia, senior vice-president (technical research and derivatives) at Motilal Oswal, pegs the short-term range for the Nifty at 23,750-24,650.