Investors are baffled by the recent experiences on the Indian stock market, which have been nothing less than a wild trip. After rising by a meek 0.30% in April and falling by a noteworthy 18% in March, the India VIX index—a gauge of volatility—rose by about 35% in May.
The Sensex began at 73,225 on Wednesday, May 8, slightly lower than its previous close of 73,511.85. Not too long afterward, it dropped another half-percent to 73,149. Similar declines were seen in the Nifty 50, which opened at 22,231.20 and closed at 22,186 from 22,302.50.
Nevertheless, despite this volatility, there was some purchasing activity in the mid-and small-cap divisions; on Wednesday morning, the BSE Midcap and BSE Smallcap indices increased by up to 0.5 percent. At 9:40 am, the Nifty 50 was down 0.29% at 22,238 and the Sensex was down 0.32% at 73,273.85. At 17.4, the India VIX increased by more than 2% as well.
Financial experts point out five key factors driving this volatility in the Indian stock market:
A major selloff was started by foreign institutional investors (FIIs), who have been leading the recent volatility. NSDL data shows that FIIs offloaded Indian equities worth ₹982 crore in just three trading days in May. Retail investors in the United States are becoming uneasy due to this persistent selling.
Another factor contributing to market anxiety is the impending general election. Retail investors are now more wary due to the lower-than-expected voter participation, even though the market has essentially priced in the NDA’s return to power. There is some market trepidation as a result of this election outcome uncertainty.
The current valuation of the Indian market is higher than its historical average. Despite being at a 5% discount to its long-term average, the Nifty 50 is currently trading at a 12-month ahead P/E ratio of 19.3 times, raising questions about pricing. Market watchers comment that some equities appear to be disconnected from basic reality, and that the valuations of the broader market are even more costly.
The current fourth-quarter earnings season has not impressed, with numerous corporations exhibiting subpar results. Few firms have surprised investors positively, and some have even delivered negative shocks, according to Kotak Institutional Equities. Considering the high prices, the market has not been satisfied with this sluggish earnings season.
A number of favorable factors have already been taken into account by the market, such as strong economic growth, projected rate decreases by the Federal Reserve, and political stability following the elections. Nevertheless, investors have little motivation to keep driving the market higher in the lack of fresh catalysts. Because there aren’t as many new catalysts, some investors are choosing to take profits, especially when prices are high.
Market Prognosis
Further corrections are anticipated by analysts as the Indian stock market struggles with these issues. The market slump may get worse in May, according to Pace 360’s co-founder and chief global strategist Amit Goel, with the Nifty possibly falling as low as 21,200 points. It is anticipated that small- and mid-cap equities will experience the most selling pressure.
In summary
In conclusion, a number of variables, such as the actions of foreign investors, uncertainties around the election, concerns about valuation, poor results, and a lack of new catalysts, are responsible for the recent volatility in the Indian stock market. The secret to surviving the storm for investors navigating through these turbulent seas will be to remain cautious and keep an eye on market movements.
