In the last two-three months of the year 2024, the upheaval in the Indian stock markets started. On 26 September 2024, the Sensex was at a high of 85,836 and now the situation is that this height has reached around 75 thousand. In the new year, it seems that the bears have taken over Dalal Street. The process of foreign portfolio investors i.e. FPIs selling shares and exiting continues.
In January so far, FPIs have sold shares worth Rs 69 thousand crore, although domestic institutional investors (mutual funds) gave a lot of support to the market by buying Rs 67 thousand crore during the same period.
In which stocks is there selling
Although there is selling all around in the market, the biggest decline is in small and medium stocks (midcap and smallcap). During the trading session on Monday, the midcap index of Bombay Stock Exchange fell by 3 percent, while the smallcap index fell by 4 percent. The market is currently glued to two important events. First, what decision is taken regarding interest rates in the meeting of the US central bank Federal Reserve on January 29, and second, India’s Union Budget which will be presented in the Parliament on February 1.
If the Federal Reserve in the US increases interest rates, then the problems of markets around the world are sure to increase. Anyway, foreign investors have avoided many emerging markets including India and in this situation, they will not delay in turning to America in search of higher and safer returns. However, Deven Choksi, Managing Director of DR Choksi Finserv, believes that after Donald Trump becoming the President of the US, it is very unlikely that the Fed Reserve will increase interest rates. Deven told BBC Hindi, “According to the attitude of President Trump, he would not want the Federal Reserve to increase interest rates.”
Why are markets falling?
Market analyst Ambareesh Baliga gives several reasons for the current market situation. Amareesh says, “The economic conditions in India have changed in the last few times. Not only private agencies, but the Government of India and the Reserve Bank have also reduced GDP growth estimates. Food inflation is still quite high. The quarterly results of companies are also mostly disappointing.” Deven Choksi also blames the new guidelines related to the futures market of market regulator SEBI for this negative sentiment in the market. Deven said, “Recently SEBI has significantly increased the minimum contract size for futures and options trading and made it Rs 15 lakh.”
Deven says, “SEBI’s intention behind this is to curb the wild activity of retail investors in F&O. By increasing the contract size, SEBI is trying to bring stability in the market.” SEBI recently released a report claiming that in the three years from FY 2022 to FY 2024, more than one crore traders suffered losses in F&O. If we talk about the loss per trader, then it was an average of two lakh rupees.
Expectations from the budget and market movement
So is the market changing its direction regarding the budget to be presented on February 1? Ambareesh Baliga does not agree with this. He says, “Anyway, the budget has become a non-event for the last 8-10 years. The impact of the announcements made in it lasts only for a day or two. The government keeps making many policy-related announcements from time to time and does not wait for the budget for that. Apart from this, the decision of GST rates is also taken from time to time.” Ambrish says that the government has already taken an important decision in the matter of capital gains tax in the last budget, so there is no scope for further changes in it.
Ambarish said, “The budget in railway and infrastructure sector can increase by 8 to 10 percent, but the problem is in implementing these schemes. Efforts should be made to speed up the implementation.” Deven Choksi says, “It does not seem that there will be anything negative for the market in the budget.”
Are investors afraid?
Last year i.e. 2024 was also special for the Indian stock markets because retail investors increased their participation. A lot of money came into the market through Systematic Investment Plan i.e. SIP and the share prices increased a lot. Ambarish Baliga says, “When fund managers got such a huge amount, they could not keep the cash with themselves, so they bought shares and can say that the value of the shares has become very expensive.”
So will retail investors panic due to this fall or will they withdraw from the market? On this question, Ambrish Baliga says, “Foreign institutional investors are selling and exiting the market. The participation of retail investors has increased, but the reality is that in the last four years most of these investors are seeing this form of the market (continuous decline) for the first time.” Ambarish says that whether small investors are scared or are stopping their investment, it will be known officially from the data of the month of January, but the way new investors have come into the market for some time, it is natural for them to panic.
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