Three Reasons Why Indian Equities Snapped Their Longest Losing Streak In A Year

Indian benchmark index Nifty 50 snapped its longest losing streak in a year on Tuesday to close above the 25,000 mark on Tuesday.

The index rose to a high of 25,044 amid intraday trades before closing with gains of nearly a percent.

Gains were led by heavyweights HDFC Bank Ltd., Reliance Industries Ltd., and Infosys Ltd. as the largest point contributors.

As the pause in trading ended for China, the country's equity markets failed to continue the rally recorded just before going into the weeklong holiday on the lack of further stimulus measures, which were expected on Tuesday morning.

Following the announcement of the long-awaited cut in interest rates made by the US and supported by the stimulus measures that were announced before the trading break, Chinese equity benchmarks had soared by as much as 20% in the span of less than two weeks.

This was in tandem with a decline in Indian equities as a tactical play on China was introduced. As focus among emerging markets shifted away from India, combined with unsupportive foreign inflows into the country, brokerages delivered notes on making investments into China.

"We formally raise exposure to China by lowering our India overweight. Solidifying Monday's call to tactically buy China, we formalise a modest upgrade to the market in our allocation using India as the funding source," brokerage firm CLSA said in a note on Monday.

"With some investor interest returning to China, there is a possibility of some rotation away/profit taking away from regional investors as investors fund their neutralisation of China weights by cutting back India (and other markets in the region such as ASEAN and even Korea)," Nomura said in a note dated Oct. 7.

As the Chinese economic planning body, the National Development and Reform Commission, did not deliver an expected further stimulus, Chinese equity indices pared their earlier gains, followed by a recovery in Indian equities.

As the Indian equities' benchmark Nifty 50 fell over 5% from its peak, declining for six sessions in a row—the longest losing streak in a year—foreign investors remained net sellers in Indian equities.

Till October 7, foreign portfolio investors have sold over Rs 38,000 crore in Indian cash markets, with October 3 recording the largest single day selling in over four years.

Even as domestic institutional investors continued to remain buyers, net institutional flows remained negative for consecutive days before DII buying overtook the FII selling on Monday.

As domestic institutions bought equities worth Rs 13,245 crore on Oct. 7, net institutional flows turned positive by Rs 4,322 crore, per the provisional figures provided by NSE.

Benchmark Nifty 50 index snapped its six-day losing streak by closing nearly a percent higher the day before the Monetary Policy Committee is set to meet.

RBI governor Shaktikanta Das is set to deliver his first address tomorrow after the introduction of the three new external MPC members.

This will be the first MPC meeting after the US Fed delivered the long-awaited cut in interest rates last month. Even as the global rate-easing cycle progresses, analysts do not expect a rate cut to be announced tomorrow.

"We are not expecting RBI, at this point, to change the policy stance, which is right now the withdrawal of accommodation," Tanvee Gupta Jain, chief India economist at UBS, told NDTV Profit.

"Data in the form of a PMI dip, fall in 2-W and PV growth, dip in personal loans, etc. point to a slowdown story for India," highlighted Indranil Pan, chief economist at Yes Bank.

"With growth not showing signs of crashing but with some lingering risks on the price side, we see the best bet for RBI to continue to stay on the sidelines," Pan said.

Barclays expects MPC to announce a rate cut in the December meet, as stated in a note dated Oct. 2.