The Indian stock market experienced significant fluctuations on Monday before ending the day in negative territory. This was mainly due to investors taking profits following a sustained upward trend in recent weeks.
The Sensex closed the session at 71,315.09 points, down by 0.24 per cent, while Nifty closed at 21,418.65 points, down by 0.18 per cent from their Friday closing. The indices touched their all-time highs last week, and are currently hovering around the respective peaks.
India's main stock indices, the Sensex and Nifty, had their longest stretch of weekly gains in six years last Friday. This extended their upward momentum to reach new record levels, driven by expectations of a potential interest rate reduction in the US markets in early 2024. The two indices rose about 2 per cent in the week on a cumulative basis.
"We are of the view that the short-term market texture is still bullish but due to temporary overbought conditions we could see range-bound activity in the near future," said Shrikant Chouhan, Head-Equity Research, Kotak Securities.
The recent significant influx of funds from foreign portfolio investors (FPIs) has also contributed to the rise of stocks towards record levels.
Foreign portfolio investors have once again turned their attention to India, emerging as net purchasers in the nation's stock market.
Following a cumulative accumulation of Rs 9,001 crore in November, they have again made a beeline to invest in Indian stock markets, with Rs 42,733 crore invested so far in December, data from the National Securities Depository (NSDL) showed.
The most recent influx coincides with India's report of robust quarterly GDP growth, solidifying its position as the fastest-growing major economy. Additionally, the country is experiencing comfortable levels of inflation and political stability leading up to the 2024 General Elections.
Prior to November, foreign portfolio investor (FPI) involvement in Indian stocks was tepid, leading them to become net sellers. They offloaded Rs 14,768 crore and Rs 24,548 crore in September and October, respectively.
Manoj Purohit, Partner and Leader - FS Tax, tax and regulatory services BDO India, said that the indication by the US Federal Reserve that further interest rate hikes were unlikely going ahead, had flooded the Indian market with fresh cash flows from the foreign portfolio investors.
Foreign investors often turn to developing or emerging economies to generate profits when interest rates are comparatively low in advanced economies, such as the United States.
Purohit said, "FPIs have reversed their position and turned as net buyers in the first week of December 2023. Additionally, the state election results in India and RBI's monetary policy outcome on maintaining status quo on rates also made FPI's stand on India markets positive."
"All in all, the momentum for the Indian cash equities market reflects a promising wind up of 2023 and a strong base for 2024 to start with, taking the foreign investments inflows to a new horizon," he added.
