On November 28, 2024, Indian stock markets witnessed a sharp decline as Foreign Institutional Investors (FIIs) resumed their aggressive selling tactics. With a net sale of Rs 11,756 crore, FIIs triggered a 1.5% drop in the Sensex and Nifty indices, marking one of the largest single-day sell-offs of the year. This sell-off comes at a time when global geopolitical risks are escalating, particularly due to the intensifying Russia-Ukraine conflict, while the retreat to safer assets, like the U.S. dollar, adds to the uncertainty.
A Close Look at the Numbers
During the trading session, the market exhibited stark contrasts in institutional behavior. While Domestic Institutional Investors (DIIs) were net buyers, purchasing Rs 17,685 crore in shares, they also sold equities worth Rs 8,967 crore. The most notable action came from FIIs, who sold Rs 22,552 crore worth of shares, while their buying activity was limited to Rs 10,796 crore.
At the close of the session, the benchmark Sensex was down 1,190.34 points (1.48%) at 79,043.74, and the Nifty had fallen by 360.70 points (1.49%) to settle at 23,914.20. This marked a significant market correction, driven largely by the weight of foreign investor withdrawals.
Geopolitical Turmoil Stokes Investor Anxiety
The sharp decline in the Indian stock market can largely be attributed to growing geopolitical concerns. The escalation of the Russia-Ukraine conflict has put global investors on edge, especially with reports emerging of a "massive strike" on Ukraine’s energy infrastructure. The BBC reported a coordinated missile and drone attack on critical energy sites, marking the second such large-scale assault within weeks. Such developments have raised fears that the conflict may escalate further, adding considerable risk to global financial markets.
As geopolitical risks mount, investors are becoming increasingly risk-averse. The flight to safe-haven assets like the U.S. dollar is intensifying, which has contributed to the bearish sentiment in emerging markets, including India. FIIs, who are often more sensitive to global risks, have opted to reduce their exposure to Indian equities, leading to a sharp sell-off.
The F&O Expiry: Amplifying Volatility
In addition to the geopolitical tensions, the timing of the FII sell-off coincided with the monthly expiry of Futures and Options (F&O) contracts. This is a high-volatility period in Indian markets, as traders adjust their positions, and market sentiment is often more fragile. Devarsh Vakil, Deputy Head of Retail Research, noted that the “monthly F&O expiry added to the volatility,” further exacerbating the selling pressure. Traders, especially those holding long positions, became nervous as geopolitical tensions escalated, leading them to unwind their positions and contribute to the broader market decline.
Vakil also highlighted that the market's nervousness is not just tied to domestic factors, but also to the broader global climate, which has become increasingly uncertain. With a lack of positive global cues and a retreat to dollar-denominated assets, the near-term outlook for Indian equities remains uncertain.
Will the Selling Continue?
The big question on everyone’s mind is whether this selling spree by FIIs will continue. The backdrop of escalating geopolitical risks, combined with the retreat to safe-haven assets, points to more caution from foreign investors. The Russia-Ukraine conflict remains a key concern, and as long as the situation continues to worsen, FIIs are likely to remain wary of increasing their exposure to riskier markets like India.
At the same time, the strength of the U.S. dollar is putting additional pressure on emerging markets. The dollar has emerged as the asset of choice for many investors seeking refuge from global uncertainty. This flight to safety has seen funds flow out of emerging markets, including India, as investors seek more secure, dollar-backed investments.
The Road Ahead: Navigating a Volatile Market
The immediate outlook for Indian markets appears volatile. The combination of geopolitical risks, global economic uncertainties, and institutional behavior is likely to keep the markets on edge. While DIIs have been net buyers, their support may not be enough to counterbalance the scale of FII outflows.
In the near term, market participants will have to remain vigilant. With geopolitical tensions unlikely to subside quickly, volatility is expected to persist. For investors, staying diversified and managing risk exposure will be key strategies in navigating this uncertain environment.
Conclusion
The aggressive selling by FIIs on November 28 is a stark reminder of how global geopolitical risks can weigh on emerging market sentiment. As tensions rise between Russia and Ukraine, coupled with the strength of the U.S. dollar, investors are taking a cautious approach, and this is reflected in the significant FII sell-offs.
With little clarity on how the geopolitical landscape will evolve, the markets may remain under pressure. For now, investors will need to tread carefully, balancing risk management with the potential for volatility in the months ahead.
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