Stock market update: Recent sessions have seen intense bouts of volatility in the Indian stock market, confusing investors. Following a pitiful 0.30 percent increase in April and a noteworthy 18 percent decline in March, the India VIX index, which gauges volatility in the Indian stock market, has risen by almost 35 percent so far in May.
On Wednesday, May 8, the Sensex began at 73,225, down from its previous close of 73,511.85, and it quickly dropped almost 0.5 percent to 73,149. In addition, the Nifty 50 dropped almost 0.5 percent to 22,186 from its opening value of 22,231.20, down from its closing value of 22,302.50.
The BSE Midcap and BSE Smallcap indices increased by 0.5 percent during Wednesday’s early trading, indicating modest buying interest in the mid and small-cap segments.
At approximately 9:40 am, the Nifty 50 was down 0.29 percent at 22,238 and the Sensex was down 0.32 percent at 73,273.85.
The India VIX increased by more than 2% to 17.4.
What’s driving the stock market in India to tremble?
Experts surmise that the Indian stock market’s volatility might be attributed to five major factors.
FIIs are offering
Experts claim that the significant selloff by foreign institutional investors (FIIs) is the primary cause of the current volatility in the Indian stock market.
NSDL data shows that FIIs had divested ₹982 crore worth of Indian shares in just three trading sessions in May.
“FIIs have been selling continuously, which has made domestic retail investors nervous,” Equinomics Research Private Limited’s founder and head of research, G. Chokkalingam, stated.
Before general elections, FIIs typically don’t make purchases. Even if they have to pay a price, they wait for the election results. Over the past 20 years, I have noticed this,” Chokkalingam remarked.
Election-day anxiety
The general election that is currently taking place may be another reason. Retail investors appear to be more cautious now that the market has fairly discounted the return of the NDA to power due to low voter turnout in the elections thus far.
“It could be that the concerns arising from the surprisingly low voter turnout in the elections thus far are the more important factor,” stated V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
One opinion is that there is currently some doubt about the ruling regime’s clear-cut and seamless win. The market is now a little uncertain, having already discounted a BJP/NDA win. Maybe this explains the market’s anxiety and the bulls’ decision to soften their aggressive posture,” stated Vijayakumar.
Premium assessment
In comparison to its historical average, the Indian market is valued at a premium. The Nifty 50 is selling at a 5% discount to its own long-period average (LPA) with a 12-month forward price-to-earnings ratio (P/E) of 19.3 times, according to Motilal Oswal Financial Services.
According to Kotak Institutional Equities, bond rates, and historical prices indicate that the Indian market is still trading at high prices.
However, Nifty-50 valuations are far more agreeable. The wider market values are considerably more costly, and the cost is inversely related to risk, quality, and capitalization. Some are wholly predicated on overly optimistic assumptions, incorrect valuation techniques, and implausible storylines, and they are completely detached from reality and the fundamentals,” Kotak stated.
See Also: Why Indian stock market is failing to meet the expectations
Unimpressive Q4 financial results
Thus far, Q4 earnings have been inconsistent and lackluster. According to Kotak, there haven’t been many pleasant surprises during the current 4QFY24 season, with results being in line with forecasts.
“A few businesses have surprised customers badly. Both consumption and outsourcing are still sluggish, but the financials are still strong. Kotak Institutional Equities stated, “Limited upgrades in earnings are in stark contrast to elevated market expectations and rich valuations.”
Absence of new triggers
According to experts, the Indian stock market has priced in a number of advantages, including the strong expansion of the country’s economy, the expected rate cuts by the Federal Reserve by year’s end, and the political stability that would follow the elections. Investors are being forced to record profits at greater levels due to a lack of new triggers.
The markets have taken into account a number of favorable factors, such as rising incomes, steady and continuous political leadership, declining interest rates, etc. Market reaction to any negative shocks in any of these could be exaggerated, according to Equitree co-founder Pawan Bharadia, who spoke with Mint.
The Indian stock market, according to Amit Goel, Co-Founder and Chief Global Strategist at Pace 360, was perfectly valued in April, having already factored in the best corporate earnings, GDP growth, and election results.
For more such articles and blogs, stay up to date with our Blog .
