Mumbai, Nov 8 : Indian equity benchmarks continued their decline for the second week, due to ongoing selling by the foreign institutional investors (FIIs) despite indications of a strengthening domestic economy.

Benchmark indices Nifty and Sensex dipped 0.71 and 1.65 per cent during the week to close at 25,492 and 83,216, respectively.

Fading expectations of a Fed rate cut also contributed to cautious investor sentiment amid mixed global cues and sectoral weakness in IT and metals led to the decline

"Select sectors found support from upbeat Q2 earnings, with PSU banks remaining in focus due to robust financial performance, improving asset quality, and renewed speculation regarding a potential FDI cap hike and sector consolidation," said Vinod Nair, Head of Research, Geojit Investments Limited.

Analysts said that buy-on-dips strategy appears prudent, as results from most Nifty 50 companies reported so far have been largely in line with estimates, and continued policy support is expected to support current premium valuations and potentially drive earnings upgrades.

According to analysts, a sharp decline in earnings growth in FY25 to 5 per cent stretched the valuations making Indian market one of the most expensive in the world.

With other emerging markets and some developed markets turning attractive with low valuations, FIIs sold in India and moved money to other cheaper markets, he added.

Nifty is currently trading above 20 times FY27 estimated earnings, which is slightly above last 10-year average PE ratio. Analysts said that due to India's superior long-term growth potential, the present valuations can be justified even though the broader market valuations continue to be stretched.

Support for the Nifty is currently located close to the 25,400 zone, while resistance is seen around 25,600, they added.

Meanwhile, there are signs of robust economic growth and earnings recovery in India. When leading indicators reinforce this trend, FIIs will reduce selling and eventually turn buyers.

Next week, market direction will depend on upcoming domestic inflation data, FII flows, developments related to the US government shutdown, and progress in trade negotiations involving the US, India, and China.

/IANS