In the previous six trading sessions, the Sensex and Nifty declined 5.6 and 5.4 per cent, respectively, amid almost Rs 40,000 crore pullout by foreign portfolio investors (FPIs). 

The selloff was triggered by a 30 per cent jump in China and rising tensions in West Asia.  

FPIs were net sellers of Rs 5,730 crore, while domestic institutions (DIIs) were net buyers of Rs 7,000 crore.

The market capitalisation of the BSE-listed firms surged Rs 7.51 trillion during Tuesday’s rally.

“Whenever the markets have corrected consecutively, the forward returns show promising recoveries. Despite short-term volatility, markets typically regain momentum in the medium term. The pullback by the FPIs has exacerbated this correction, but a key point of strength is the significant cash reserves held by domestic institutional investors and retail investors. They are well-positioned to capitalise on these corrections, providing a buffer against prolonged downturns,” said T Manish, Research Analyst, Samco Securities.

Manish added the recent correction is an opportune time to rebalance and accumulate quality stocks at lower valuations, potentially enhancing returns and generating better alpha over time.

The stock market rally in China lost steam after the country’s top economic planning agency did not announce major stimulus measures. The Hang Seng on Tuesday declined 9.4 per cent, while the Shanghai Composite rose 4.6 per cent.

Equity market experts said any underperformance in the Indian equities due to flows shifting to China is likely to be short-term as India’s structural story remains attractive.

If the valuations revert to more moderate levels, foreign investors would likely look to re-enter the market.

“Since 2020, recovery in the Chinese markets lasted for an average of two months before it resumed the downtrend, which pushed it to the oversold territory again,” said Amar Ambani, executive director of Yes Securities.

Going forward, RBI’s monetary policy decision and the earnings season, which kick-starts this week, will determine the market trajectory. Investors will also be keenly tracking the minutes of the Fed meeting, which will be released on Wednesday, and the jobs and inflation data from the US.

“The Nifty faces an immediate resistance zone around 25,150-25,300, with a significant hurdle still at 25,500. Traders should consider using this recovery to lighten positions and remain selective for long trades. We continue to favour IT and pharma stocks for their resilience and recommend careful stock selection in other sectors,” said Ajit Mishra, SVP Research, Religare Broking.

Close to two-thirds of Sensex stocks advanced. HDFC Bank, which rose 1.95 per cent, was the biggest contributor to index gains.

Overall, market breadth was weak with 3,024 stocks advancing and 923 declining. 

First Published: Oct 08 2024 | 8:30 PM IST