While stock markets have fallen nearly 6 per cent since the beginning of October, making it the worst fall in stocks after the Covid-led crash in March-April 2020, market experts say that while investors need to moderate their expectations. The sustained selling by foreign portfolio investors (FPIs) comes amid somewhat of a consensus that the growth prospects over the medium to long-term largely remain intact, buttressed by the fact that domestic funds have been, as earlier, buyers in this falling market.
There are, of course, near term challenges before the market like the Middle East crisis, weak corporate performance and the FPI sell-off in October, over-valuation of Indian equities, money flowing to Chinese markets and also money flowing from secondary market to the primary market (IPO issues). The market is expected to overcome these risks and regain the forward momentum as witnessed on several occasions of fall and rise in the last five years. A major positive factor is the massive inflows of close to Rs one lakh crore from domestic institutions led by insurance companies and mutual funds during the month, absorbing whatever FPIs sold.
“As conditions have changed, market returns should now moderate and there is a dearth of meaningful pockets of undervaluation. The recent sharp upsurge in the Chinese markets after a period of significant underperformance could lead to FIIs diverting flows from India in the near term. Coupled with the large pipeline of stocks, a cautious approach is pragmatic,” said Prashant Jain, CIO and fund manager, 3P Investment Managers.
Mutual funds have been getting good inflows in their equity schemes with investors remaining committed to their systematic investment plans (SIPs) — they invested a record Rs 24,500 crore through SIPs in September. Insurance companies, especially LIC which made a profit of Rs 15,500 crore from the stock market in the June quarter, a rise of 13.5 per cent when compared to the last year, are contrarians which buy when others sell and vice versa. The state-owned insurance major, the largest institutional investor, invested Rs 38,000 crore in the stock market in the June quarter and Rs 132,000 crore in the previous financial year.
Analysts generally advise investors to adopt a ‘buy on dip’ strategy to accumulate stocks and equity schemes of fund houses, and not to resort to knee-jerk sell-off in the current high volatility in the stock market. Foreign investors who are exiting the market will come back when the valuations become attractive again. FPI investment is hot money that chases opportunities in various global markets.
While it’s debatable whether the sell-off is over or not, domestic fundamentals are still strong. The Reserve Bank of India has maintained its 7.2 per cent GDP growth for fiscal year 2024-25 even as retail inflation remains sticky above the 5 per cent level. A Repo rate cut in December will be a booster shot for the market. Corporate performance is expected to improve in the December quarter.
In short, retail investors should not become nervous and exit; instead, they should stay invested.
