Domestic Funds Begin Profit Booking, Turn Cautious Ahead Of Q1 Results

Domestic institutions, which kept the equity markets afloat, have turned cautious and started booking profits ahead of the upcoming earnings season.

Local funds have sold equities worth Rs 385.2 crore in Asia's third-largest stock market during the week ended July 5, the first time since the beginning of the year. This compares to an inflow of Rs 7,186.1 crore during the previous week.

The last time domestic institutions were net sellers was during the beginning of the calendar year, when they sold stocks worth Rs 7,296.5 crore, according to provisional data from the National Stock Exchange.

Meanwhile, during the week ended July 5, foreign institutions have bagged equities worth Rs 6,870 crore, NSE data shows.

One week of net sell figure is not a trend, but can be seen as profit booking as DIIs have been consistent buyers in the market when FIIs were on sustained sell mode, according to V K Vijayakumar, chief investment strategist, Geojit Financial Services Ltd. "Since they are sitting on good profits, it makes sense to book some profits. Hence the brief selling."

This comes while analysts have raised caution regarding current valuations, as they believe that earnings are not keeping up with the stocks' rally, with most sectors showing a decline in their earnings upgrade.

Furthermore, only 39% of the NSE Nifty 200 universe has seen earnings upgrades in the last three months, whereas 77% have seen positive price movements, Bernstein said in a report.

Expectations for the first quarter remain subdued. However, recent high-frequency economic indicators and strong macro suggest a diminishing likelihood of weak corporate results, said Vinod Nair, head of research at Geojit Financial Services. "Nonetheless, any such outcome could potentially dampen the ongoing market rally in the short term."

Tata Consultancy Services Ltd. will kickstart the earnings for the Nifty 50 companies this week, followed by HCL Technologies Ltd.

The benchmark NSE Nifty 50 hit a fresh record 40 times so far in 2024 and has risen by 11.7% during the year. Meanwhile, the 30-stock Sensex climbed 10.5%. In June, both indices rose by about 7.3% each.