MUMBAI
The recent equity sell-off, led by aggressive sell-offs by foreign portfolio investors (FPI), has eroded investors’ wealth worth almost ₹60 trillion in the last three and a half months.
Market veterans expect the pain to continue as long as FPI selling continues in an uncertain macro environment.
The wealth measured by the market capitalization of all stocks was ₹473.84 trillion on September 27, when the Nifty 50 hit an all-time high of 26,277.35. Since then, the benchmark index has corrected 12% to 23,085.95, resulting in a decline of ₹59.61 trillion in investor assets ₹414.23 trillion on Monday.
A drop of more than 10% from the highs implies a correction, and a drop of more than 20% a bear market.
Broader markets such as the Nifty Smallcap 250 and the Nifty Midcap 150 also underperformed, falling 13.5% each from their peak in late September, which also contributed to the decline in market capitalization.
Why are foreign investors selling?
The sell-off was led by FPIs who sold cash shares or secondary shares worth net ₹1.85 trillion since October through January 12, amid a falling rupee and rising crude oil prices due to fresh US cuts on Russia, data from National Securities Depository Ltd (NSDL) and BSE Ltd show.
Meanwhile, domestic institutional investors (DII), led by mutual funds, have net purchased equity value ₹BSE data shows that 2.18 trillion came from the secondary market during the same period.
The reason for the decline, despite DII purchases matching FPI sales, is that DIIs are bidding at lower prices to give the latter exits.
“Volatility will continue as long as FPIs sell aggressively,” said Nilesh Shah, managing director at Kotak Mahindra AMC. “DIIs will provide them with an exit but at lower prices so that the decline can continue. Once FPIs stop (selling) and start buying, the market will resume its uptrend. It is good to invest in quality and sail through rough seas for the long term.”
However, it seems unlikely that FPI buying will happen anytime soon as the rupee weakens and crude oil rises due to rising bond yields in the US ahead of the inauguration of newly elected President Donald Trump and the latest round of sanctions imposed by the outgoing government by Joe Biden have been imposed on Russian tankers and maritime vessels. insurers.
“The falling rupee and rising crude oil are a double blow for Indian equities and are likely to keep the market volatile as Trump’s inauguration approaches (Jan 20) and the impact of his trade and economic policies has global ramifications” , said G. Chokkalingam. founder, Equinomics.
Brent crude has risen 12% since September 27, crossing the $80 per barrel mark. During the same period, the rupee has weakened 3.4% to a record low of 86.58 against the dollar on Monday. The depreciating rupee reduces the dollar return of FPI.
US bond yields have risen from 3.7% in mid-September, when the US Federal Reserve began cutting rates for the first time in four years to 4.76% – down 100 basis points so far to 4.25- 4.5%. One basis point is one hundredth of one percentage point.
The increase comes as hopes for more interest rate cuts despite post-pandemic ultra-loose fiscal and monetary policies are fading due to tight US labor markets.
Rising yields have led to a sell-off in emerging market stocks, bonds and currencies, with global investors pinning their hopes on the safety of the US 10-year note or dollar.
The longest post-pandemic correction from top to bottom lasted eight months, from October 19, 2021 to June 17, 2022, resulting in erosion of the m-cap ₹34.81 trillion, with the Nifty plummeting 18% from a record high of 18,604.45 to a low of 15,183.40.
