The Indian stock market continues to trade in the correction zone and is on track to post the worst monthly losses in over four years as foreign investors keep on with 'sell India' strategy. Analysts, however, remain divided on the causes.
After a record-breaking rally in the first half of this year, global funds have sold Indian stocks in every session in October, making it the hotspot of outflows in Asia.
Global funds have sold stocks worth over Rs 1.11 lakh crore in the last 20 consecutive sessions, according to provisional data from the National Stock Exchange. In October, the outflows sum up to over Rs 1 lakh crore.
So far in October, the benchmark indices—NSE Nifty 50 and the 30-stock BSE Sensex—have plunged about 6.01% and 6%, respectively, the worst since the rout triggered by Covid-19 in March 2020.
However, the combined efforts of retail and domestic investors have prevented the $5.25 trillion stock market from plunging like the Covid rout, where the benchmark gauge plummeted over 20%. Domestic institutions alone have bought stocks worth Rs 97,000 crore this month, helping withstand the heavy selloff by global funds.
The Nifty corrected by 8.3% from the recent peak, while the mid- and small-cap indices corrected by 9.8% and 9.3%, respectively, from their recent peaks.
The index movements conceal the carnage in the mid- and small-cap spaces, where the correction has been above 30% in dozens of stocks and even by more than 40% in some momentum stocks, said VK Vijayakumar, chief investment strategist at Geojit Financial Services. "It is important to know that many large caps are steady in this volatile market."
Experts attribute this month's FII exodus to a combination of factors such as the shift from India to China, slowing growth, and rising yields in the US, although the primary reason remains contentious.
Bearish traders need to be cautious from hereon as a "sizable amount of correction is over", according to Rajiv Batra, head of strategy, Southeast Asia, India at JPMorgan.
Money rotating from India to China is a "wrong notion", while the US election uncertainty made people shift towards the dollar-asset class, Batra said. The long-term path does not change for India; it continues to remain structurally overweight," he said.
There are structural, cyclical themes that remain in India to invest in, and stocks linked to power and the capital market could continue to benefit, he said.
However, Manav Chopra director-technical analyst at Nuvama Institutional Equities doesn't see any sectors forming new highs in times to come. The Nifty might not go above 25,000-25,300 in the medium term, Chopra told NDTV Profit. The capital goods stocks could see more correction going forward, he said.
Two sectors—Nifty Oil & Gas and Nifty Auto—took the most beating as foreign investors continued to offload domestic stocks, with both gauges falling over 12% so far this month. Nifty FMCG and Nifty Realty followed suit, experiencing a decline of over 10% each. Nifty IT was the best-performing major sector that registered only a marginal fall so far in October.
The outflows from the country are happening as China begins a stimulus blitz—from interest rate cuts to easing spending by local government—to revive the economy.
However, "that was not the true reason FIIs were selling as much as they are," said Rajesh Bhatia, chief investment officer, ITI Asset Management Co. The highlight is the really poor results at the peak of the market, Bhatia said. "I have never seen so much breadth of poor results as we are seeing this time."
According to Bhatia, the primary reason FIIs are selling is due to the increase in interest rates in the US.
Goldman Sachs "tactically" downgraded domestic stocks from "overweight" to "neutral" within its emerging market allocation, citing slower economic growth and corporate profits. This comes after Bernstein Research downgraded the local stocks as it perceives the market to be "quite vulnerable" in the near term.
The drop in tax collection last month heightened concerns about a slowing economy. Gross goods and services tax collection growth in September reached 6.5%, marking a 40-month low. The output growth of the eight core sectors declined in the latest reading.
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