Reflecting the increased nervousness on Dalal Street on the probable outcome of Lok Sabha election, market’s fear gauge India VIX has also shot up by about 67% to fresh 52-week high levels.
Unfazed by both India VIX and FII selling, fearless desi boys are not only holding their fort but also buying the dip non-stop without batting an eyelid.
In the last 21 trading days, DIIs (domestic institutional investors) have spent around Rs 60,000 crore. At the end of April month, mutual funds were sitting on a cash pile as big as Rs 1.36 lakh crore and therefore have enough dry powder to absorb any sell-off by foreign investors.
But why are FIIs selling? One of the popular theories on the Street is that FIIs do not want to take any election-related risk at a time when the market is near all-time high levels. Nifty is just one lucky day away from breaking old records while the market capitalisation of all listed stocks on BSE has already crossed the $5 trillion mark for the first time ever.Also read | Worried about election results? Top 39 stock ideas for a ballot-proof portfolioMarket insiders say that FIIs do not want to take any chances as in the 2004 Lok Sabha elections, when UPA had unexpectedly stormed into power, Sensex had crashed 15% in a single day.Foreign investors have a tendency to avoid uncertainty and are probably locking in the profits they made last year.
The Chinese are making profit-booking from India easier as Hong Kong’s Hang Seng has shot up by 16% during the last one month.
“The China trade is coming back as investors believe that all the bad is already priced in. It is looking attractive tactically, if not structurally. A reallocation game is happening as investors are betting on the short-term recovery of the Chinese markets,” points out ArunaGiri N, Founder and CEO of TrustLine Holdings.
Trading at PE levels of around 20, India is relatively expensive than cheap markets like Hong Kong where the PE is around 10.
“The market valuations are quite high. We anticipate the market remaining volatile after June 4th. Once the election concludes, all eyes will be on the July budget announcement, triggering more speculation and potential market swings. The high market valuations could act as a barrier to significant market gains, but there’s also a possibility of a downturn,” said Sunil Damania, Chief Investment Officer, MojoPMS
FII behaviour could also be a direct response to the ongoing geopolitical crisis in the Middle East and the strength of US bond yields.
Also read | Stock market people will get tired after June 4 election results, says PM Modi
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)