 |
|
The Indian stock market, particularly the Dalal Street, is experiencing a significant selloff, driven by a confluence of factors, including relentless foreign institutional investor (FII) selling, disappointing Q2 earnings, and global uncertainties, particularly related to the upcoming US presidential election. The midcap index has entered a correction zone, falling over 10% from recent highs, reflecting the deepening pessimism in the market.
FIIs have been aggressively offloading their holdings, contributing to the bearish sentiment. On October 24, FIIs sold equities worth Rs 5,062 crore, adding to their near Rs 1 lakh crore selling spree in October. This heightened selling activity is attributed to several factors, including heightened tensions in the Middle East, a shift in EM investment flows towards China after the recent stimulus announcements, and concerns over urban consumption and demand growth in India. The FII exit is seen as a significant catalyst for the current market downturn, prompting investors to brace for a potential short-term drawdown.
Adding to the market woes are disappointing Q2 earnings, particularly from key players like IndusInd Bank. The bank reported a steep 40 percent decline in net profit, leading to a significant drop in its share price and wiping it off the list of India's top 10 most valued lenders by market capitalization. The weak earnings were driven by higher provisions, subdued growth in the higher-yielding loan portfolio, and declining other income. Leading brokerages have also revised their target price for the stock downward, reflecting concerns over the bank's near-term growth potential.
Global uncertainties, particularly related to the US presidential election, are also adding to the market volatility. The US presidential race is proving to be closer than anticipated, with Donald Trump and Kamala Harris locked in a tight battle in key swing states. This uncertainty is impacting investors' sentiment, as they brace for potential volatility in the lead-up to the election. Additionally, rising US treasury yields, driven by reduced expectations of US Fed rate cuts, have further contributed to a risk-off sentiment in Asia.
Even the defensively positioned FMCG sector, typically a safe haven during market turbulence, is facing pressure. Rising input costs, particularly in agricultural commodities, have put pressure on profit margins. This trend underscores the broader economic challenges facing Indian businesses and the impact on investor confidence.
Experts are advising investors to avoid excessive concentration in smallcap names and instead prioritize a balanced portfolio. With the combination of FII selling, weak earnings, and global uncertainties, the Indian stock market is facing a challenging period. Investors need to carefully assess their risk tolerance, diversify their holdings, and remain vigilant to navigate the current market environment.
Source: Relentless FII selling, earnings setbacks and more: Factors behind the selloff on Dalal Street