The Nifty 50 finished August in the red, dropping by nearly 2.55%, impacted by a range of domestic and global factors, including a slowdown in FPI investments, the strengthening of the dollar index, and a rise in US 10-year bond yields. This August decline marked the index's first monthly drop since February and also stands as the biggest monthly drop in CY23.
From its historic high of 19,991, the index is currently down by 2.73%. During this challenging month, only six Nifty 50 stocks, including Tech Mahindra, Cipla, M&M, LTI Mindtree, Infosys, and HCL Tech, managed to gain over 5%. In addition, nine other stocks, such as Titan, Axis Bank, Maruti Suzuki, Adani Ports and SEZ, NTPC, Wipro, SBI Life Insurance, Larsen & Toubro, and Coal India, recorded gains within the range of 0.4% to 3.3%.
Conversely, 35 Nifty stocks ended the month of August in negative territory. Among these, 13 stocks including SBI, Hero MotoCorp, Power Grid Corporation, Apollo Hospitals, Bajaj Finserv, Britannia Industries, Tata Motors, Bajaj Auto, ITC, Reliance Industries, UPL, BPCL, and Kotak Mahindra, saw losses ranging from 5% to 10%.
FPIs inflows moderated in August as they bought Indian equities worth ₹12,262 crore. During July, June, and May, FPIs pumped over 30,600 crore, ₹47,148 crore, and ₹43,838 crore, respectively, into Indian equities.
“The pace of FPI investments is influenced by the expectations of the endowments and pension funds that sponsor them. With the US 20-year bond rate at 4.65%, FPIs' willingness to invest in riskier Indian equities could be dampened, as these funds usually target a return of about 6%,” Mayank Mehraa, smallcase manager and principal partner at Craving Alpha, told PTI.
This caution is driven by the availability of safer investments offering comparable returns without the higher risks associated with equities. Consequently, while FPI investments continue, their moderation reflects the intricate interplay of global market dynamics, investor preferences, and potential returns, he added.
On the domestic front, July CPI inflation came in higher at 7.44%, the highest since April 2022, led by a sharp surge in food inflation to 11.51%, the highest since January 2020, driven by the cost of vegetables, spices, cereals, and pulses.
During its third bi-monthly policy review, the Reserve Bank of India (RBI) anticipated an uptick in inflation for July and August. For the fiscal year 2023–24, the RBI revised its inflation projections to 6.2% in Q2, 5.7% in Q3, and 5.2% in Q4. Looking ahead to the first quarter of fiscal year 2024–25, the RBI has set its inflation forecast at 5.2%.
In terms of sectoral indices, Nifty Bank dropped 3.64% in August, which is the largest monthly loss since January. The banking sector took a hit after the Indian central bank set the incremental cash reserve ratio (ICRR) limit at 10% to drain excess liquidity from the banking system following the withdrawal of the ₹2,000 currency note.
Meanwhile, the Indian rupee hit an all-time low of 83.44 against the US dollar in August, driven by an uptick in US Treasury yields and selling by foreign institutional investors (FIIs). The rupee fell 0.56% during the month.
The US dollar index, a measure of the dollar's strength against a basket of six major currencies, on the other hand, gained 1.73% in last month.
On the commodities front, crude oil prices registered their third monthly gain in a row. Brent crude futures settled 2.21% higher at $86.83 a barrel last month. West Texas Intermediate (WTI) gained 2.84% to $83.63 a barrel during the same period.
Volatility Continues
"Dalal Street is likely to witness another volatile trading month on the backdrop of the bearish tone being witnessed at global markets. We believe FII's participation in domestic markets will be a key factor to watch. Unless FIIs don’t post satisfying buying figures, markets are likely to remain in a subdued zone."
"Technically, caution will be the buzzword, and investors will have to brace for a rough session at Dalal Street as long as Nifty is trading below the 19,517 mark. Any weekly close above 19,517, the setup is up to 19,620–19,650 levels, while the line in the sand to watch is at Nifty’s make-or-break support at 19107 mark," said Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities.
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