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11-year data suggests bears control D-Street in October; can bulls make a comeback?

Money Control, Oct 2, 2019

Foreign institutional investors (FIIs) have bought Indian shares worth $1.04 billion in September, the highest monthly inflow since May, said a report.

After a historic September, all eyes are on October, which has remained in the clutches of bears in at least six out of the last 11 years.

The bulls had a stellar run in September as benchmark indices rallied by about 4 percent. The S&P BSE Sensex reclaimed 39,000 while Nifty50 managed to reclaim 11,600 levels.

The BSE Sensex gained 1,334.54 points to end the month at 38,667.33 and the Nifty climbed 451 points to 11,474.45 after falling 6 percent and 7.5 percent, respectively, in the previous three months.

As we enter October, anecdotal evidence suggests that bears have an upper hand. The month of October started on a muted note with Sensex witnessing a fall by about 362 points while Nifty50 fell by 114 points on Tuesday.

The market will remain shut on Wednesday on account of a public holiday.

Anecdotal evidence suggests that the index has given flat to negative returns in October in six of the last 11 years. The index saw a drop of more than 25 percent in October 2008, followed by 2009 when it slipped 7 percent, and in 2018 it dropped by nearly 6 percent, data from AceEquity shows.

Apart from two tall towers witnessed in 2011 and 2013, the gains in October in the 11 years have not been that inspiring. The index rallied nearly 10 percent in 2011, followed by 8.4 percent in 2013, followed by 5.4 percent rally in 2017, data showed.

After a buoyant September, alleged corporate governance issues in Indiabulls Group weighed heavily on Dalal Street in the first week of October. Now, all eyes will be on September quarter earnings as well as RBI monetary policy.

“I believe that markets should start moving up from now on, in anticipation of an economic recovery. I expect the RBI to cut rates in its meeting in October,” Rajiv Singh, CEO, Karvy Stock Broking, told Moneycontrol.

“I would watch out for central bank meetings, the US Fed, ECB, and BoJ meetings scheduled towards the end of the month. I would also watch out for US-China trade negotiations,” he said.

Institutional Flows

Institutional activity picked up in October. Anecdotal evidence suggests that foreign institutional investors (FIIs) were net buyers in Indian markets in eight of the last 11 years.

FIIs poured in nearly Rs 25,000 crore in October 2010, followed by Rs 18,012 crore in 2013, and over Rs 10,000 crore in 2012.

On the other hand, mutual funds were also net buyers for six of the 11 years in October. They poured over Rs 24,000 crore in 2018, followed by nearly Rs 10,000 crore in 2017, and about Rs 9,000 crore in 2016, data shows.

FII flows have the long standing inherent nature that they are sticky. After the recent announcement made by the government last month, flows should resume.

Foreign institutional investors (FIIs) have bought Indian shares worth $1.04 billion in September, the highest monthly inflow since May, said a report.

“The data shows that FIIs were heavy buyers after the Modi victory, and then turned heavy sellers post-Budget. But, we think FIIs have no choice but to recognize the attractiveness of the Indian market,” Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management told Moneycontrol.

“We believe FIIs will return to India in the coming days and weeks. With mid and small caps beaten down, we advise investment in large and midcaps, via multi cap funds that provide healthy exposure to profitable, large, mid and small caps in the ratio of 2/3rd large, one-third mid and small,” he said.