In the last five sessions, the sensex has lost nearly 4,000 points, from its recent closing high at 61,309 on January 17. One of the main reasons for this slide is the selling by select foreign funds, market players said.
If interest rates in the world’s leading economies go up to rein in inflation, that would make getting money expensive and hence these fund managers are taking some money off risky emerging markets, including India, analysts said.
Recent data bolsters this logic. Monday’s selling was led by foreign portfolio investors (FPIs) with a net outflow at Rs 3,752 crore, that took the month’s net withdrawal figure to about Rs 15,000 crore or $2 billion, BSE and CDSL data showed.
Institutional sales people, who interact with foreign and domestic fund managers on a daily basis on behalf of brokers, said that a large part of the current selling is by hedge funds and ETFs while long-term investors like insurance companies and pension funds are not bearish on India, and hence not selling aggressively.
The day’s selling left investors poorer by nearly Rs 9 lakh crore with BSE’s market capitalisation now at Rs 264 lakh crore. On a year-to-date basis, investors are poorer by Rs 5.3 lakh crore, official data showed.
Despite the sharp sell-off, there are analysts who are assuring investors that the current sell-off is expected to ebb in the next two-three sessions. According to Harendra Kumar, MD, Elara Securities India, in December the sensex had seen a low at below 56k mark and we are yet to reach there. “Yet, investors are much nervous now mainly because there is a shift in investors’ preference from growth stocks to value stocks,” he said.
What this means is that investors globally, including in India, are shifting from those companies with high price-to-earnings (P/E) ratio to reasonably lower P/E numbers. In India, stocks like Zomato and Pay™ are growth stocks while companies like Reliance Industries, Maruti, ICICI Bank, etc, are value stocks. “There is a perceptible shift in investor preference” from growth to value stocks, he said. “The going for the high P/E stocks in the short run would be slightly challenging.”
Market players also said that compared to in the US where technology stocks have a huge weight in the indices and are being hammered, in India, similar tech-enabled companies have almost no weight in leading indices. Hence, investors should not panic and sell every profit-making stock, irrespective of the industry they belong to. On Monday evening, the leading indices in the US were hammered again with the Nasdaq composite index down over 3% in mid-session, while Dow Jones index was down 2% and S&P 500 2.6%.
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