Markets dip as Hindustan Unilever slumps; foreign fund outflows continue

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Equity markets in India turned negative on Thursday after a promising start, as continuous foreign fund outflows and disappointing earnings from Hindustan Unilever weighed heavily on investor sentiment. The BSE Sensex initially rose by 177.84 points, reaching 80,259.82, while the NSE Nifty climbed 45.15 points to 24,480.65 in early trade. However, the early rally soon faltered, with both indices slipping into negative territory.

By mid-session, the BSE benchmark index had dropped by 219.12 points, trading at 79,862.86, while the Nifty fell by 74 points to 24,361.50. The sharp decline was largely driven by Hindustan Unilever, which saw a significant 5% drop following its disappointing second-quarter results. The company reported a 2.33% decline in consolidated net profit, totalling Rs 2,595 crore, for the quarter ending in September 2024. The FMCG giant cited a slowdown in urban demand as a key factor behind the lower-than-expected earnings.

Other major losers in the Sensex pack included Nestle, Bharti Airtel, Bajaj Finserv, ICICI Bank, and Maruti Suzuki. In contrast, stocks such as HDFC Bank, Mahindra & Mahindra, UltraTech Cement, Sun Pharma, Power Grid, and HCL Tech managed to post gains despite the broader market weakness.

Foreign Institutional Investors (FIIs) continued their selling spree, offloading equities worth Rs 5,684.63 crore on Wednesday, as per exchange data. In contrast, Domestic Institutional Investors (DIIs) remained net buyers, purchasing shares worth Rs 6,039.90 crore, offering some support to the market.

The persistent FII selling, which has totalled Rs 93,088 crore as of 23rd October, is a major headwind for the market, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. "Elevated valuations in India, combined with more attractive valuations in markets like China and Hong Kong, are driving foreign investors away," he explained. He also noted that the market's current structure has shifted towards a 'sell on rally' pattern, as earnings growth struggles to keep up with market valuations.

Meanwhile, Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, commented on the broader market sentiment, stating, "The optimism in our markets has stalled after a tough trading session, with the Nifty closing in the red for three consecutive days. Key factors like disappointing corporate earnings, FII selling, concerns over the pace of US interest rate cuts, and rising bond yields in the US are dampening bullish sentiment."

Global cues also played a role in Thursday's market activity, with Asian markets trading mixed. Tokyo remained in positive territory, while Seoul, Shanghai, and Hong Kong posted losses. The US markets closed lower on Wednesday, adding to the cautious outlook.

In addition to equity market movements, global crude oil prices saw an uptick, with Brent crude rising by 1.25% to USD 75.90 per barrel.

Despite the market's subdued performance, experts believe there are opportunities for investors. Shriram Subramanian, Founder and MD of InGovern Research Services, pointed out that mid and small-cap stocks are becoming attractive due to their current valuations. "While FIIs are selling, DIIs continue to buy, especially in stocks where valuations are appealing. Large-cap stocks, however, will likely continue to attract flows," he added.

Varun Aggarwal, Founder and MD of Profit Idea, also offered insights into the day's trading, noting that technical indicators like the Average Directional Index (ADX) suggest continued weakness. He expects range-bound movement in the market, with heightened activity around the 24,500 level for the Nifty, especially with tomorrow's expiry approaching.

Overall, Thursday's market action reflects the cautious stance of investors, driven by global and domestic uncertainties, as well as stock-specific developments.

(With inputs from Agencies)