Macquarie Capital, believes that Indian markets might drop by 5-7% soon. This decline is driven by foreign institutional investors (FIIs) selling off their shares to focus on China. Concerns like geopolitical tensions and high valuations of Indian stocks are causing this shift, while China is expected to benefit from speculation about an economic stimulus. However, Bhatia thinks this won’t affect the positive outlook for India overall.
USA has overtaken India as the world’s most expensive market, with India slipping to second place.
Macquarie believes that a 20% market correction could be good for Indian stocks, but a 5-7% drop seems more likely in the short term because of the attention FIIs are giving to China. He feels that India needs some time for the market to adjust to more reasonable levels, and if that happens quickly, it would be a good thing.
With rising tensions in the Middle East and a rally in Chinese stocks, FIIs have sold more shares this month than in the last four and a half years. China will continue to attract investment in the coming months, as it is likely to take steps to improve its economy and markets. He insists that this focus on China does not change the positive view on India.
Macquarie Sandeep Bhatia points out that Indian stocks are currently expensive, and he welcomes a correction for the market’s long-term health. He believes that domestic investment will remain strong, but he is concerned about whether India can keep up its GDP growth of over 7%. He views the shift in FII interest towards China as something that could help stabilize the Indian market in the future.
Macquarie expects FIIs to keep selling their shares, he admits that it’s hard to predict how the market will correct itself. He thinks a quick drop in the benchmark indices is likely, along with strong domestic investment. He believes that the correction won’t be slow because companies are still expected to report good earnings.
If there is a broad market correction, Bhatia plans to invest in private sector banks because he thinks their valuations are reasonable and they could do well if the U.S. continues to cut interest rates next year. Macquarie sees opportunities in IT stocks if the U.S. economy grows and IT spending stays steady, but warns that small and mid-cap sectors will likely face more difficulties.
In October, foreign investors sold shares worth ₹62,126 crore in the Indian market, while domestic investors bought ₹60,070 crore.
Recently, Bernstein Research has changed its rating on the Indian stock market from ‘neutral’ to ‘underweight,’ suggesting that they think it is “quite vulnerable” in the near future. This downgrade is primarily due to worries about record-high valuations compared to China and other emerging markets, increased risks of overcrowding in large-cap stocks, and a growing number of downgrades within the market.
Update (23rd October, 2024)
Laurence Balanco, a leading chartist at CLSA, anticipates further corrections for the Nifty 50 index, which is currently down 7% from its record high of 26,277 on September 27. He predicts the index could drop to around 23,300 within the next 20 trading sessions, representing a decline of 1,170 points from Tuesday’s closing level of 24,470.
Balanco highlights an accelerated downside momentum and identifies a head-and-shoulders reversal pattern formed in recent months. He expects the Nifty to test its 200-day moving average, currently at approximately 23,389, for the third time this year, suggesting at least a 5% downside to long-term trend support levels.
He also notes that the BSE PSU index has fallen below its 200-day moving average, indicating significant vulnerability in the sector, particularly in PSU stocks like Coal India and Power Finance Corporation (PFC). Balanco emphasizes that while private banks have shown resilience, PSU banks have begun to underperform, marking a shift in sector dynamics.
Foreign investors pulled a record ₹82,500 crore from the Indian stock market in October, extending 16 days of selling amid high stock valuations. Total outflows since September 27 reached nearly ₹93,500 crore, surpassing March 2020’s ₹61,973 crore.
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