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The Indian stock market ended a busy week with losses, primarily driven by continued withdrawals of foreign portfolio investments (FPIs). The Nifty index fell 0.6%, and the Sensex dropped 0.3%, marking the fifth negative return in the last six weeks. FPIs have pulled out a significant Rs 1.14 lakh crore ($13.6 billion) during this period, contributing significantly to the market downturn.
Experts attribute the sell-off to various factors, including tactical fund flows shifting to China due to stimulus measures, slowing economic and earnings growth, geopolitical risks, and a strengthening dollar. These factors, coupled with high valuations, exacerbated the sell-off. Donald Trump's US election victory is anticipated to further strengthen the dollar, potentially leading to FPIs withdrawing funds from emerging markets.
However, potential corporate tax rate cuts in the US could benefit information technology and pharmaceutical companies. This explains the Nifty IT index's strong performance this week, recording a 4% gain. The Nifty PSU Bank index also saw a 1% rise. Kotak Institutional Equities suggests that while US corporate tax cuts might lead to higher earnings and spending on IT services, they could also result in larger fiscal deficits and dollar weakness in the long term.
On the other hand, the real estate, media, energy, and fast moving consumer goods sectors experienced significant losses, with their indices declining between 1.8% and 4.1% during the week. JM Financial highlights that 44% of the companies in its coverage that have reported earnings so far missed expectations, while 41% exceeded estimates, contributing to investor anxiety. Krishna Appala of Capitalmind Research believes the continued selling pressure is cooling down valuations, creating an opportunity for investors to accumulate high-conviction stocks during this correction phase.