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The Indian stock market, represented by the benchmark indices Sensex and Nifty, experienced a significant downturn on Monday, marking their sixth consecutive day of losses. This decline can be attributed to a confluence of factors, primarily stemming from concerns about foreign portfolio investor (FPI) outflows and a broader shift in global investment sentiment towards the Chinese market.
The FPI outflows, which amounted to a substantial Rs 27,142 crore in the initial days of October, have sparked fears of a wider sell-off. This trend is being driven by the impressive performance of Chinese stocks, particularly the Hang Seng index, which has surged by 26% in the past month. This outperformance is attributed to a combination of factors, including attractive valuations in Chinese stocks and expectations of strong economic growth fueled by the Chinese government's stimulus measures.
The valuation disparity between Indian and Chinese equities is another contributing factor. The Nifty index is currently trading at 21.5 times its one-year forward earnings, exceeding its historical average of 20.4 times. In contrast, the MSCI China gauge stands at a much lower 10.8 times forward earnings, below its five-year average of 11.7 times. This disparity in valuations has made Chinese equities appear more attractive to investors.
Beyond FPI flows, other factors are also weighing on the Indian market. The escalating geopolitical tensions stemming from the Israeli-Iranian conflict have raised concerns about potential oil price volatility, which could impact India's economy as a major oil importer. Brent crude oil prices have edged closer to the $80 a barrel mark, adding to the negative sentiment.
Furthermore, the recent state elections in Haryana and Jammu & Kashmir, where the ruling BJP is projected to face losses, have introduced an element of political uncertainty. While these elections are not considered a major market mover, they could still contribute to volatility in the short term.
The outlook for corporate earnings also casts a shadow over the market. India Inc. is not expected to report robust earnings in the current quarter, with pressures from commodity prices and a cooling effect from previous positive trends in the banking and financial sector.
Despite the gloomy outlook, the market is currently overlooking positive economic data emerging from the US. This suggests that investor sentiment is primarily focused on the immediate concerns related to FPI outflows, valuations, and geopolitical risks.
In summary, the Indian stock market's recent decline can be attributed to a combination of factors: FPI outflows driven by Chinese stock outperformance, higher valuations compared to Chinese equities, geopolitical concerns, and subdued earnings expectations. While these factors are creating a challenging environment, the market's reaction may also be influenced by global economic developments and investor sentiment.
Source: Sensex, Nifty: 5 reasons why stock market is falling today