Markets

Published: August 5, 2023
Updated: August 5, 2023

"Markets Rebound, But FPIs Sell Amid Volatility - RBI Interest Rate Decision Looms Ahead"

The Indian stock markets experienced a rebound on Friday, putting an end to a three-day losing streak and closing in the green. However, this recovery came amidst persisting market volatility, and it marked the second consecutive week of overall decline. Foreign portfolio investors (FPIs) took the opportunity to sell shares worth a provisional ₹556.32 crore, while domestic institutional investors (DIIs) made purchases worth ₹366.61 crore. Analysts anticipate continued market fluctuations, especially with the upcoming Reserve Bank of India (RBI) interest rate decision. Interest-sensitive sectors, particularly banks and autos, are expected to remain in focus during the next week.

Market Recovery Amid Economic Resilience:

The benchmark Nifty and Sensex indices recorded gains of 0.7% each, with the Nifty rising by 135.35 points to close at 19,517, and the Sensex gaining 480.57 points to reach 65,721.25. Despite this recovery, both indices still traded below their peak levels registered on 20th July, with Nifty down 2.37% from its record high and Sensex down 2.8%.

Respite Amid Positive Economic Indicators:

India's services activity surged to 62.3, its highest in 13 years, driven by robust demand, providing some respite to domestic equities. Siddhartha Khemka, head of retail research at Motilal Oswal, highlighted the significance of the upcoming week, as the RBI will announce its interest rate decision. The market is expected to move within a broader range, influenced by the RBI's decision and the ensuing market volatility. The focus is likely to remain on sectors sensitive to interest rates.

FPI Selling and Market Concerns:

One concerning aspect this month has been the selling by FPIs, who were instrumental in the market's rally from March to July. The market witnessed a substantial 19% rise from its low of 16,828 to the record high of 19,991.85 during this period. However, FPIs have sold shares worth ₹2,034 crore so far in the current month, contrasting with their previous substantial purchases of ₹1.57 trillion from March to July.

Anticipation Around RBI Rate Decision:

The Reserve Bank of India raised the repo rate by 250 basis points from May 2022 to February this year but maintained the policy rate in the April and June bi-monthly policy meets. As the central bank rate-setting committee is expected to keep the rate steady this time as well, analysts will closely scrutinize its commentary, particularly in light of the Federal Reserve's rate hike to a 22-year high.

Despite the recent market rebound, the persisting volatility and FPI selling signal cautiousness among investors. The upcoming week's focus on the RBI's interest rate decision will likely influence market movements. Investors are advised to monitor interest- sensitive sectors closely and carefully assess the central bank's commentary in response to global economic trends. As the markets navigate through uncertainties, a prudent and watchful approach is necessary to make well-informed investment decisions.