Street Has a Spring in the Step, But No Bottom Yet

Indices recover due to short-covering, even as FPI selling remains relentless

- Ram Sahgal

Stock market indices have pulled back from the lows of early March, but veterans on the Street do not believe the market has bottomed out yet. The reason: Persistent selling by foreign portfolio investors (FPIs), who have dumped Indian shares for six straight months through March.

The Nifty and Sensex have recovered over 1,200 and 3,700 points from their nine-month lows seen earlier this month. On Thursday—the day of weekly derivatives expiry which tends to see sharp movements—the Nifty rose 1.24% to close at 23190.65, while the Sensex settled 1.19% higher at 76348.06.

The continued recovery has been aided primarily by FPI short-covering in Nifty and Bank Nifty futures and, to a lesser extent, by domestic institutional investors (DIIs) buying in the cash market amid stability in the rupee and underperformance of the US markets.

"Market direction will be determined by flows," said Nilesh Shah, managing director at Kotak Mahindra AMC. "While the FPI selling intensity has reduced, they are still offloading Indian shares. To be certain that markets have bottomed, FPI outflows have to reverse, because MFs will not give them exits at current prices."