Stock market crash: FPI selling continues, political uncertainty adds to market jitters
In a month marked by relentless selling from Foreign Portfolio Investors (FPIs), the Indian stock market has witnessed a significant downturn. FPIs have sold equity worth ₹24,975 crores in the cash market, contributing to the underperformance of the market. On the other hand, Domestic Institutional Investors (DIIs) have been buying, but High Net Worth Individuals (HNIs) and retail investors seem to be adopting a cautious approach due to the political developments unfolding.
The lower voter turnout in the initial phases of the elections has sparked debates on its potential impact on the ruling party and the Opposition alliance. With claims and counterclaims abound, the uncertainty surrounding the election results has increased. This uncertainty, coupled with the intense and polarizing electioneering, has led to a decline in the market’s certainty regarding the outcome. As a result, the market, which had previously priced in a victory for the NDA/BJP, is now experiencing some volatility.
While the political landscape plays a role in market fluctuations, the sustained FII selling is primarily driven by factors beyond the election results. The relative valuations of different stock markets and the recent performance disparities have been key contributors to the market weakness. During a one-month period, the Indian market underperformed compared to global indices such as the S&P 500 and Stoxx 50, as well as regional markets like Shanghai Composite and Hang Seng.
The impact of China’s economic challenges on global markets cannot be overlooked. With projections of low growth rates and ongoing issues in the real estate sector, China’s economic outlook remains uncertain. The long-standing underperformance of Chinese markets has led to a recent reversal, with Shanghai Composite and Hang Seng outperforming and attracting foreign investors back to Chinese stocks. This shift in investor sentiment has prompted FIIs to reallocate their investments from expensive emerging markets like India to undervalued Chinese equities.
Despite the current market volatility, the base case scenario points towards political stability in India. As clarity emerges on the political front, the market is expected to rebound. The collective buying power of DIIs, HNIs, and retail investors could counterbalance FII selling and drive a turnaround in the market. Investors are advised to capitalize on the market weakness by accumulating high-quality large-cap stocks that are currently fairly valued.
In conclusion, while market conditions may change rapidly, consulting with certified experts before making investment decisions is crucial. The views and recommendations provided in this analysis are those of individual analysts or broking companies, and investors are urged to exercise caution and diligence in navigating the evolving market landscape.
