Selloff not over, stock market may remain under pressure

Mumbai: The recent selloff in the stock market that shaved off almost 5% from the benchmark indices may not have run its course yet, said market experts. In a poll of 21 equity strategists and fund managers by ET over the weekend, the majority said the worst may not be over as the spurt in selling by foreign portfolio investors (FPIs) as well as worries about higher inflation and a possible rise in interest rates have investors on edge.

A flood of initial public offers (IPOs) has also impacted the market as investors have booked profits to subscribe to the new offers.

Sensex and Nifty could decline by another 5-10%, said 60% of those polled. Banks, IT and real estate were the top sectoral picks amid the decline. Stock-wise, HDFC Bank was the most common choice. There was an even split on the outlook for the Nifty, which closed at 17,671.65 on Friday – 33% expected it at 17,000 by the end of this year; a similar number saw it at 18,000. About 60% of those polled said investors should reduce portfolio allocation to equities as stock valuations look rich after the near-vertical surge in the market since late March 2020.

IPO Rush in Nov

Half of those surveyed recommended a 60:40 allocation to equity and fixed income. Only a fifth of those polled voted in favour of an aggressive 80% allocation to stocks.

“This is a fair value market and we have an equal weight on equities,” said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. “The long-term growth story is intact but one should be equal-weight – neither underweight or overweight.” The Sensex has dropped 4.7% from its high of 62,245.43 on October 19 while the Nifty is down 5% from its peak of 18,604.45 scaled on the same day.

On Friday, foreign portfolio investors sold Indian shares worth ₹5,142.6 crore, taking their total sale for October to ₹18,000 crore – the highest in a month this year.

Money managers said the rush of IPOs in November may also exert pressure on the secondary market.

Nykaa is raising ₹5,352 crore through its IPO. PolicyBazaar is coming to the market in November with a ₹1,960 crore IPO. Paytm recently increased its IPO size to ₹18,300 crore from ₹16,600 crore.

“Because of the pressure in the primary market, we may witness some selloff in the secondary market. There is a lot of bunching up of these IPOs and till this rush of IPOs gets absorbed there will be pressure on the secondary market,” said Shankar Sharma, founder, First Global.