Mumbai: Sensex, Nifty fell for the second straight week as foreign investors kept selling heavily. Despite this, the domestic economy showed strong signs of growth. However, continuous FII outflows weighed on investor confidence and market sentiment. Meanwhile, analysts expect stability ahead if local demand and earnings momentum continue to hold firm.
Indian equity benchmarks ended lower for the week, with Nifty slipping 0.71% to 25,492 and Sensex falling 1.65% to 83,216. Weak global trends and fading hopes of a US Fed rate cut dampened investor confidence. Additionally, IT and metal stocks dragged the market, reflecting overall sectoral weakness.
However, select sectors gained support from strong Q2 results. PSU banks stood out with solid financial performance and better asset quality. Furthermore, renewed talk about a potential FDI cap hike and sector consolidation added optimism, said Vinod Nair, Head of Research, Geojit Investments Limited.
Analysts believe adopting a buy-on-dips approach makes sense. So far, most Nifty 50 earnings have met expectations. Moreover, steady policy support could sustain valuations and even lead to earnings upgrades.
Still, a slowdown in FY25 earnings growth to around 5% has stretched valuations. As a result, Indian equities now rank among the world’s priciest markets. With other emerging and developed markets offering cheaper valuations, FIIs continued to sell in India and redirected funds elsewhere.
Currently, Nifty trades above 20 times FY27 estimated earnings, slightly higher than its 10-year average PE. Yet, experts argue that India’s strong long-term growth outlook supports these valuations, even though the broader market looks expensive.
For now, analysts see support for Nifty near 25,400 and resistance around 25,600. Moreover, robust economic data and signs of earnings recovery indicate underlying strength. When these trends gain momentum, FIIs may reduce selling and eventually return as buyers.
Looking ahead, market direction will hinge on domestic inflation data, FII flows, and global developments. Besides, updates on the potential US government shutdown and progress in trade talks between the US, India, and China will also influence sentiment next week.