Indian equities

Nifty opened flat but soon drifted into red and closed near day's low at 19671 levels with loss of 140 points (-0.7 per cent). 

Volumes on the NSE rose towards recent average volumes. Broad market indices closed almost flat even as the advance decline ratio dropped to 0.88:1.

While the overall net flows experienced a dip in various categories, it is noteworthy that thematic/sectoral funds extended their positive trend into the current month, attracting the highest net inflows.

"We see limited point in trying to find fundamental reasons behind the steep increase in stock prices of several mid-cap and small-cap stocks," it said. "In our view, the steep increase in stock prices simply reflects the irrational exuberance of investors in the mid-cap and small-cap parts of the market," it said.

This inflow marked the highest flows in the past five months. Small caps funds extended the positive trend into the current month with the highest net inflows, followed by thematic/sectoral funds and multicap funds. Consequently, August month witnessed a robust rally in mid and small-cap stocks, Chaturvedi said.

“We expect the current equity cycle to be analogous to the 2003-2008 bull cycle when output growth rose sharply, inflation stayed stable and improvements in productivity drove a a rise in investments.

Domestic equities had weak handover from its global peers as high US inflation and mounting trouble in China's real estate market dented the sentiments. Even on the domestic front, IIP data came at 3 months low.

All sectors ended in the green, except IT and consumer durables. BFSI, FMCG and pharma were the top gainers, up 1 pert cent each. On the backdrop of consistent FIIs buying (Rs 16,300 crore month till date), sound macros and micros, and surplus monsoon so far, Nifty has rallied by 15 pert cent since April 1, and 4 pert cent month till date, Khemka said.

The post-Covid surge in direct retail activity has normalised as evident in the non-institutional share of market volumes which is off 12 ppt from peak. Data on 'active' accounts from NSE shows a 22 per cent decline in these accounts by May 2023 from the mid 2022 peak. Also, while the past few weeks has seen mid-cap stock volumes rise, they are still to reach levels associated with mid-cap index peaks.

This is largely a result of strong FPI equity flows (highest among select EMs for four months in a row), pick-up in MF equity flow, benign crude oil prices, sharp progress in south-west monsoon, continued demand traction (with signs of rural and capex cycle recovery), and likely mid-teen corporate earnings growth (with minimal earnings downgrade), Antique Stock Broking said in a note.