Indian shares fell on Friday as inflation above 6% and a rebound in oil prices weighed on sentiment. But the market still posted its third straight weekly gain, and the real action was in smaller companies, which outperformed the big names by a wide margin.
The rally took a breather on Friday, but the week still ended in the green.
The Sensex fell 318.56 points, or 0.39%, to close at 81,592.45. The Nifty fell 155.05 points, or 0.61%, to 25,144.30, snapping a three-day winning streak.
Real estate, car and cement stocks fell the most, while banks, financial and metal stocks also weighed. The selling followed Thursday’s data showing India’s retail inflation rose to 6.09% in October, above the RBI’s 6% upper limit, which has made a December interest rate increase look very likely. A rebound in oil prices added to the caution.
The rupee weakened 21 paise to close at 94.24 per dollar, as a strong US dollar and rising US bond yields pulled emerging-market currencies lower.
The week in numbers
Despite Friday’s fall, both indices recorded a third consecutive weekly gain. The Nifty rose about 0.5% over the week, and the Sensex about 0.7%.
That is a much calmer pace than the previous week, when the Nifty surged 8.58% and the Sensex 8.82%, their strongest weekly gains in more than six years.
The Nifty Smallcap index jumped 3.6% this week, and the Midcap index 2.1%. Thirteen of the 16 major sectoral indices ended the week higher. Banks were a particular strength: the Nifty Bank index came within about 250 points of its record high during the week.
What drove the week
The week tested the rally from every direction. Nvidia lost its founder and chief executive. US bond yields surged on expectations of more Federal Reserve rate increases. India’s inflation crossed 6%. And hopes of a quick US-Iran peace deal faded.
What held the market up was money and oil. Foreign investors kept buying Indian shares, while Brent crude stayed well below its levels at the start of the month. Moody’s also raised its forecast for India’s growth this year to 7%.
What the trend says
The shift towards smaller companies is a sign of rising confidence among domestic investors, who tend to buy small- and mid-sized stocks more heavily than foreign funds do. It also means the rally is broadening beyond the large companies foreign money favours.
But the pace of gains has slowed sharply, and the risks are building. Inflation at home and rising interest rates in the US are both pointing towards tighter money. Next week brings more results and, crucially, any news from the US-Iran talks, which will shape the direction of oil.
For investors, the message from this week is that the rally is intact but getting choosier. Small and mid-sized companies are leading for now.
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