HomeIndiaWhy is there chaos in the stock market for the last 4 months? Know the condition of the market

Why is there chaos in the stock market for the last 4 months? Know the condition of the market

Why is there chaos in the stock market for the last 4 months? Know the condition of the market

#News Bureau January 24,2025

The stock market has shaken up investors. This period of decline is such that it does not end. In the last four months, the stock market has crashed by about 12 percent. There is no segment of it where there has been no earthquake. Even mutual fund investors have suffered a big blow in these months. So the question is, has there been a correction in the market? Has the bubble of the stock market burst or is the condition of the country’s economy such that the confidence of investors has been shaken?

Before knowing what are the major reasons behind such a situation of the stock market and how will the situation be in the future, let us know what is the condition of the market? On Thursday, the Sensex is at more than 76000 points, but just a day before it had reached below 76000. The same Sensex had reached close to 86 thousand in the month of September. On September 27 last year, the Sensex had touched an all-time high of Rs 85,978.84. But since then the Indian stock market has seen a huge decline.

The benchmark index has fallen a massive 10,000 points or 11.79 per cent in the last four months. The NSE Nifty index has also declined, falling 12.38 per cent during the same period. Large-cap stocks have been hit the most due to heavy selling by foreign investors, which has led to a 13.27 per cent decline in the NSE large-cap index in four months.

The NSE mid-cap index has fallen 12.85 per cent, while the small-cap index has fallen 9.87 per cent. Although IT stocks remained largely unaffected, capital-intensive sectors such as automobiles and oil and gas have suffered badly.

The stock market is in such a state when economic indicators are pointing to a bad situation. The country’s economy is in a terrible state! GDP growth rate has been estimated to decline to 6.4 per cent. Inflation has increased. Inflation in food items has either increased or remained stable. A major cause of concern is the weak quarterly results. Earning growth of companies has become a big problem. So far, the September quarter results of most companies have been less than expected.

This has had a direct impact on foreign investment. Whether it is a matter of portfolio investment or FDI. FDI has reached a 12-year low. And the investment of Indian companies abroad is also at a 12-year peak. That is, money is going out of the country from both sides. Foreign investors who had invested in India are not only running away with the money, but Indian investors are also investing more money abroad than in India. How strong will the economy be with insufficient money? It can also be understood in this way that what can be the condition of a body with lack of blood?

Before knowing what is the status of investment and what effect it can have, know what exactly is meant by investment. Foreign direct investment is money invested by a firm or individual based in one country in business interests located in another country. Foreign portfolio investment (FPI) refers to investments made in securities i.e. stock markets and other financial assets of another country.

RBI data shows that net FDI inflows into India declined to $14.5 billion in April-October 2024, the lowest since 2012-13 when it was $13.8 billion. Net FDI from 2012-13 to 2023-24 has been slowing down year after year since the pandemic. Net FDI was $34 billion during the April to October period of 2020-21, which declined to $32.8 billion in 2021-22, $27.5 billion in 2022-23 and $15.7 billion in 2023-24.

There is a huge difference between net FDI and gross FDI and it is very important to understand this. Even if gross FDI is not less than before, net FDI can be very low, which is not good for the country’s economy.

Actually, the reason for the decline in net FDI is that outbound investment increases. As much investment is made by foreign companies, the money of the earlier investment made by them is also withdrawn during the same period. Apart from this, investments are also made abroad by the companies of the country. That is, the money of this investment is also going out of the country. In this way, if we subtract the outbound investment from gross FDI, then net FDI investment is obtained.

While foreign companies seem to be moving away from India for investment, it seems that Indian companies are also doing the same. Foreign investment by Indian companies increased to $12.4 billion in April-October 2024, the highest since at least 2011-12. This is a 55 percent increase compared to the same period last year. Thus, even though the gross FDI inflows remained at $48.6 billion, the money flowing out of the country in the form of repatriation and disinvestment rose to $34.1 billion in the April-October period of this fiscal year.

According to the National Securities Depository Limited i.e. NSDL, as of 27 December 2024, FPIs made a net investment of Rs 1656 crore in Indian equities. Although foreign investors were major sellers in the stock market, they remained buyers in the primary market.

So the question is, what is the problem of foreign portfolio investors with the domestic stock market?

Many reasons are being given behind this. Stock market experts say that concerns about the valuation of shares in the Indian stock market include lower than expected GDP growth in the second quarter of FY 2025, weak corporate earnings and rising US bond yields.

It is being said that the biggest concern among foreign portfolio investors about the Indian stock market is the valuation of the shares and Indian shares are trading at prices much higher than their actual value. The stock market has fallen a lot recently. Sensex and Nifty have fallen by about 11-12 percent from their peak.

The post US presidential election situation has worsened the situation as investors are preferring dollar assets. FPIs sold shares worth Rs 94,017 crore in October and Rs 21,612 crore in November. After buying shares worth Rs 15,446 crore in December, they started selling again in the first month of 2025 and sold Rs 51,748 crore till January 21. Foreign portfolio investors have sold their equities in most emerging markets including India. Mutual fund holdings of investors have suffered huge losses as the net asset value of all schemes has declined.

So what will be the direction of the market now? It has generally been seen that whenever the Indian stock market has gone through a period of major decline, it has fallen by about 15 percent. The current decline is also going to touch almost this level. It is being said that now a lot will depend on the state of the economy and the performance of the companies. Kunal Vora, Head of India Equity Research, BNP Paribas, told The Indian Express, “We expect 2025 to be another year of single-digit returns for the markets. Indian GDP growth has slowed down.” That being said, there will be a lot of pressure on the stock market.

Share With:
Rate This Article
Author

vikashdeveloper163@gmsil.com

No Comments

Leave A Comment