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New Delhi: Foreign portfolio investors (FPI) have "pulled out $3.5 billion from India's equity markets" so far in May. If the selling pressure continues at this level, this could be "the highest FPI pull-out since January 2023." Advertisement >
Stock market decisions, especially by FPIs are subject to a variety of factors and hedges. Business Standard writes, "The selling comes on the back of election-induced volatility and the rotation of flows from India to China, where stocks are available at half the valuations." >
As far as politics goes, where traders make their bets, is an indicator of political sentiment. This pull-out could be linked to traders "getting increasingly anxious about the incumbent National Democratic Alliance (NDA) regime's margin of victory in the ongoing Lok Sabha elections and its impact on policy continuity." Advertisement >
India VIX, a volatility index based on the NIFTY Index Option prices, also rose to 20.6 this month. Since polling began in this long-drawn, seven-phase poll, it has "gained 47%." "There could be modest knee-jerk weakness in forex and risk assets if the Bharatiya Janata Party (BJP) loses some seats and maintains a majority," wrote MUFJ in a note. >
"Conversely, a greater seat share win by the BJP compared with 2019 would increase the ability to pass more contentious structural reforms in land, labour, and the agriculture sector and will be perceived much more positively by markets, with the rupee and risk assets likely rallying in the aftermath," it said. Advertisement >
Business Standard also cites a note by Investec as saying, "This election, we believe, is not a wave election where a single dominant issue or theme is driving the voter sentiment and reckon the much-talked-about drop in voter turnout in 2024 could be an interplay of various factors and may not necessarily tilt the scales in favor of any one party." >
Analysts have focussed on Chinese stocks being more attractive over expensive Indian equities. >
V.K. Vijayakumar, chief investment strategist, Geojit Financial Services told Business Today last week that it was not clear why there was aggressive FPI selling in May. >
"There are reports attributing the FPI selling to possible setbacks to the NDA/BJP in the elections. It is important to understand that the FPI selling is due to a change in FPI stance from 'sell China, buy India' earlier to 'sell India, buy China' now. This change in stance has been caused by the recent outperformance of China and underperformance of India. This is likely to be a near-term trend triggered by the cheap valuations of Chinese stocks and the relative high valuations of India," Vijayakumar is reported to have said. Advertisement >