Nifty50 Experiences Toughest Year in Ten Years: Can November Revitalize Dalal Street?
NEW DELHI: Indian equities faced a challenging October, with the NSE Nifty50 index experiencing significant losses. The index has dropped approximately 13% this year, potentially marking its worst annual performance in over a decade. Despite entering oversold territory, analysts suggest that a recovery may be possible in November, although hurdles remain, including high crude oil prices and global investor preferences for AI-linked markets.
Potential for Recovery in November
Brokerages IIFL Capital and Nuvama have identified key levels that the Nifty50 must surpass for a meaningful rebound. IIFL Capital anticipates the index could rise to between 23,300 and 23,500, driven by its oversold condition. However, a stronger rally beyond 23,500 would require positive announcements to boost market sentiment and attract foreign investment. The brokerage cautioned that India’s performance might still lag as global investors continue to favor AI-related investments amid elevated crude prices.
Nuvama noted that the market lacks a clear directional trend as the November derivatives series begins. They suggest that while oversold conditions could push the Nifty towards 23,250, a sustained rally would necessitate a decisive break above 23,480. The oversold status is indicated by the relative strength index (RSI), which measures market momentum, with readings below 30 suggesting potential for a short-term rebound.
Shift in Foreign Investor Positioning
In October, foreign investors adjusted their positions in the derivatives market. Nuvama reported a reduction in short positions in Nifty 50 index futures, decreasing from 267,000 contracts at the start of the month to 221,000 by the end. Additionally, there was an increase in long positions in single-stock futures, indicating a shift towards a more balanced investment strategy among foreign investors.
Impact of AI Trade and Crude Oil Prices
The performance of Indian equities diverged from the broader emerging market trend in October, where MSCI’s emerging markets index fell by 7.4%. Investors reassessed their exposure to AI-linked investments amid rising valuations. Despite a brief unwinding of the AI trade, buying momentum in Indian equities remained weak, with IIFL Capital noting that any rallies were short-lived.
Crude oil prices continue to pose a significant challenge for the Indian market. As the world’s third-largest crude importer, India is particularly sensitive to rising oil prices, which can lead to inflation, strain public finances, and pressure corporate profits.
IT Stocks Show Resilience
Among the sectors, information technology stocks provided notable support during the October derivatives series, surging by 16.3%. This increase was driven by better-than-expected quarterly results and a temporary unwinding of the AI trade. IIFL Capital described the interest in IT stocks as the only positive aspect of the October series. Looking ahead, Nuvama anticipates increased bullish positions in IT and telecom stocks, while investor sentiment in metals, automobiles, and fast-moving consumer goods remains cautious.
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