
What is contributing to the downturn in Indian markets? | Explained
The HinduThe story so far: For the sixth consecutive day, BSE Sensex closed lower on Wednesday reflective of a major sell-off among foreign institutional investors and portfolio investors, mixed earnings and apprehensions about the tightening of the tariff regime in the U.S. According to Devarsh Vakil, Head of Prime Research at HDFC Securities, the current situation in the market emanates from tepid domestic earnings growth, elevated valuations in mid and small cap segments, and persistent inflation exceeding the RBI’s lower threshold of 4%, and uncertainty around trade and tariffs. He further noted that while domestic institutional investors have been compensating for the FII outflows, “market sentiments have been impacted.” In addition to this, Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities pointed out that dollar denominated returns of Indian equities “have not been impressive at all”. The correction now is leading to shift in investors strategy to move from small and mid-caps to large cap stocks and hence this severe underperformance.” Additionally, according to Geojit’s Chief Investment Strategist, mid and small cap valuations had reach “unsustainable levels”. According to Mr. Vijaykumar, “FIIs will return to India, only the timing is uncertain.” He further adds, “Indications of a growth and earnings recovery in India and dollar decline — we do not know when it will happen, will make FIIs buyers in India.” Additionally, Mr. Vakil holds that deep uncertainty about President Trump’s tariffs plans may keep investors on the “defensive”.
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