Are markets poised for deeper cuts down the road?

Dalal Street witnessed another bloodshed on Thursday as weak earnings by retailers listed on Wall Street rang alarm bells regarding subdued consumer demand.
The BSE Sensex crashed 1,416 points to slip below the 53,000-mark, while the Nifty50 gave up over 300 points to slip below the 15,900-mark.

So far in calendar year 2022, frontline indices -- S&P BSE Sensex and Nifty50 -- have bled over 10% each whereas, broader markets have tumbled up to 21 per cent.

The selling comes on the back of monetary tightening by global central banks that are walking a tight-rope to tame inflation while allowing growth to prosper.
Soaring oil prices and earning downgrades are expected to keep market confidence muted in the near-term.
 
That said, what has worsened the correction is the relentless selling by foreign portfolio investors for eight consecutive months.

Since October last year, FPIs have sold equities worth nearly 2 trillion rupees with 4 of the eight months seeing selling of over 30,000 crore rupees each.

And despite retail investors and domestic institutional investors giving muscle to the market, FPIs are having an upper hand.
So what’s worrying the FPIs and when will this selling abate?
 
Nischal Maheshwari, CEO – Institutional Equities, Centrum Broking, says rising inflation, tapering balance sheet spooking markets. Exit of easy money policy stoking inflationary pressures, he says. Money moving back to US; 10-year yields at 3%. 
He says that Daily FII sell-off is seeing slowdown, but FII will remain cautious until inflation is controlled. FII buying still a couple of quarters away
 
While Maheshwari believes retail investors have behaved maturely during this breakdown a break below 15,000 on the Nifty can trigger fresh bout of panic selling.

After yesterday’s closing, tech charts suggest that the Nifty50 formed bearish pattern on the daily charts on Thursday, signaling a negative trend. The index now needs to hold 15,671 for a reversal, while it may face stiff resistance at 16,000.

On Friday, investors will watch out India’s forex reserves data, the UK’s retail sales data for April, March quarter results, and other global cues for today’s trading session.