The Indian stock market has experienced severe volatility in recent trading, leaving investors perplexed. The India VIX index, which measures volatility in the Indian stock market, has risen nearly 35% in just four sessions in May so far, following a modest 0.30% rise in April and a steep 18% decline in March.
On Tuesday, May 7, India’s stock market benchmarks, the Sensex and Nifty 50, opened higher but quickly fell across the board, losing almost a percentage point each.
The decline was even greater in the mid-cap and small-cap segments. BSE Midcap index rose over 2% while BSE Smallcap index fell nearly 2% during trade.
India’s VIX index rose nearly 6% to the 17.6 level.
At around 12:15 pm, the Sensex was down 0.63% at $73,434 and the Nifty 50 was down 0.70% at $22,285.
What is the cause of the turmoil in the Indian stock market?
Experts believe that there are five important reasons behind the fluctuations in the Indian stock market.
FII sales
According to experts, the biggest reason for the recent volatility in the Indian stock market is heavy selling by foreign institutional investors (FIIs).
In just three trading sessions in May, FIIs sold a significant amount of Indian stocks INR982 million according to NSDL data.
“FIIs are continuously selling off, creating anxiety among retail investors in the country,” said G. Chokkalingam, founder and head of research at the firm. Equinomics Research Private Limited.
“Generally, FIIs do not buy before general elections. They wait for the election results even if they have to pay a premium. I have observed this for the last 20 years,” Chokalingam said.
anxiety before election
Another factor may be related to the ongoing general election. Although the market has discounted the NDA’s return to power considerably, low voter turnout in previous elections appears to have instilled some caution among retail investors.
“Perhaps the more important factor may be the anxiety stemming from unexpectedly low voter turnout in previous elections,” said VK Vijayakumar, chief investment strategist at the firm. geojit financial services.
“One view is that a decisive and smooth victory for the ruling party is now a little uncertain. Markets have already discounted a BJP/NDA victory, but now they are a little less certain. Perhaps This could be the reason for the government’s concerns. Markets and bulls will be less aggressive,” said Mr. Vijayakumar.
Also read: Investors are in hiding ahead of election results
premium rating
The Indian market is valued at a premium compared to historical averages.Street Motilal Oswal Financial ServicesNifty 50’s 12-month forward price/earnings ratio (P/E) is 19.3 times, and it is trading at a 5% discount to its long-term average (LPA).
Kotak Institutional Stocks It was observed that the Indian market is still trading at expensive levels compared to history and bond yields.
“But the valuations of Nifty 50 companies are much more palatable. Broader market valuations are even more expensive, and that expensiveness is inversely proportional to capitalization, quality and risk. Some valuations are based on fundamentals and reality. It’s based on unfettered and completely optimistic assumptions, which are wrong “valuation methodologies and unrealistic narratives,” Kotak said.
Also read: Why are so many Indians buying up stocks?
4th quarter earnings are lackluster
Fourth quarter earnings so far have been mixed and unimpressive. Kotak said the ongoing Q4FY24 season had few positive surprises and profits were in line with expectations.
Kotak Institutional Equities said: “Several companies delivered negative surprises. Financials remain strong while consumption and outsourcing remain weak. Limited improvement in earnings reflects rising market expectations. This is in stark contrast to the company’s strong market share and rich valuations.”
lack of fresh triggers
Experts say Indian stock markets are discounting several positive factors, including strong domestic economic growth, the Federal Reserve’s expected interest rate cuts by the end of the year, and post-election political stability. Due to the lack of new catalysts, investors tend to book profits at higher levels.
“Markets have priced in a number of positive factors, including revenue growth, stability and continuity of political leadership, and lower interest rates. A negative surprise in any of these could result in a disproportionate reaction in the market. “There is a possibility that this could happen,” said co-founder Pawan Baladia. Equitresaid Minto.
Amit Goel, Co-Founder and Chief Global Strategist pace 360said the Indian stock market was priced in perfectly in April, with markets discounting top corporate performance, GDP growth and election results.
Some investors are feeling anxious as election results approach, Goel said.
Goel expects further market correction in May, with Nifty potentially falling to the 21,200 level, with small and mid-cap stocks bearing the brunt of the selling pressure. .
Also read: Expert opinion: Possibility of profit taking after election results, says Equitree’s Pawan Baladia
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Disclaimer: The views and recommendations expressed above are those of individual analysts, experts, and brokerages and are not the views of Mint. We recommend checking with a certified professional before making any investment decisions.
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