Indian Equities Slide Further in November Amid Market Caution and Global Economic Uncertainty

Indian equities are likely to see another turbulent month as market analysis reveals that October’s steep downturn, the sharpest since the market crash of March 2020, is primed to extend into November. Investors have increasingly adopted a “sell on rally” approach, leveraging minor price rebounds to secure short-term gains in a weakening market. This trend, reflected in equity derivatives data from October, shows a clear shift towards bearish sentiment among institutional and foreign investors.

In a significant development, market-wide open interest (OI), a measure of active futures contracts in the Indian market, fell for the first time in twelve months. Total OI at the beginning of the November series on November 1 stood at 4.068 trillion rupees ($48.38 billion), a marked decline from 4.802 trillion rupees at the beginning of the October series on September 27, according to reports. Notably, Nifty futures OI alone dropped from 451 billion rupees at the start of October to 281 billion rupees at the start of November, further underscoring a bearish shift.

This trend reversal was accompanied by a roughly 8% decline in the Nifty 50 Index from its all-time high on September 27 to the end of October, driven by record-high net equity sales from foreign investors totaling $11.2 billion. Foreign investors, who had previously held net long positions, shifted to net short positions worth $1.5 billion in Nifty futures by the end of October, a stark contrast from a net long position of $3.13 billion at the end of the September series.

High-net-worth individuals (HNIs) and retail investors, on the other hand, took an opposing stance. This client category flipped to net longs of $2.08 billion, up from net shorts of $2.21 billion, with many choosing to cover their short positions in October. The client category covered their shorts in October series, while foreign investors unwound their index longs and added significant shorts, according to reports. This split in strategy points to ongoing volatility, with institutional moves suggesting a conservative stance while retail investors show cautious optimism.

Macro-Economic Uncertainties Add to Market Caution

In addition to local market dynamics, looming global factors are adding pressure to India’s economy. Analysts have highlighted the upcoming U.S. Presidential election as a significant variable. The outcome could reshape trade relations, especially if the United States, under new leadership, opts to bolster domestic manufacturing. Such a shift would impact Indian exports, given the U.S.’s role as a major consumer of goods from India, China, and Europe. A surge in American manufacturing could strain supply chains and influence prices across sectors including everyday consumer goods, electric vehicles, and semiconductors.

While increased U.S. manufacturing could be a boon for domestic producers, it may reduce demand for imports from Asia and Europe, potentially leading to slowed growth in Indian exports. This impact could ripple across the Indian economy, potentially stalling growth that had been forecasted amid high domestic demand and infrastructure investment.

A Bearish Outlook, but Room for Rebound?

With the Nifty 50 Index currently trading below all short-term moving averages, analysts suggest that the Indian market may continue to see profit-taking until it stabilizes. The data from the derivatives expiry indicate that the “sell on rally” trend may persist through November. Market analysts, however, note that despite the recent downturn, a rebound is possible if global economic pressures ease or if the market sentiment among foreign investors shifts.

As India’s economy braces for the potential impacts of global policy changes, all eyes will be on the U.S. and other global markets. For now, market analysts advise caution, as the equity slide in India shows little sign of abating in the immediate term.

David Wells
Financial Desk