Stock market falling regularly
Recent sessions have seen intense bouts of volatility on the Indian stock market, confusing investors. In just four sessions this May, the India VIX index—which gauges volatility in the Indian stock market—has increased by almost 35%. This comes after a pitiful 0.30 percent increase in April and a noteworthy 18% decline in March.
Tuesday, May 7, saw a general selloff that resulted in benchmarks for the Indian stock market, the Sensex and the Nifty 50, falling about 1% each after opening higher.
In the smallcap and midcap sectors, the selloff was more profound. Throughout the session, the BSE Smallcap index dropped by almost 2% and the BSE Midcap index plummeted by more than 2%.
The India VIX increased by over 6% to 17.6.
The Nifty 50 was down 0.70 percent at 22,285 and the Sensex was down 0.63 percent at 73,434 at 12:15 p.m.
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Reasons for volatility in Indian stock market
Effect of Lok Sabha Polls
The general election that is currently taking place may be another reason. Retail investors appear to be more cautious now that the market has fairly discounted the return of the NDA to power due to low voter turnout in the elections thus far.
“Perhaps the more significant factor might be the apprehensions emanating from the unexpectedly low turnout in the elections so far,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
FIIs selling
Experts claim that the significant selloff by foreign institutional investors (FIIs) is the primary cause of the current volatility in the Indian stock market. NSDL data shows that FIIs had divested ₹982 crore worth of Indian shares in just three trading sessions in May.
“FIIs have been continuously selling, which has caused nervousness among domestic retail investors,” said G. Chokkalingam, Founder and Head of Research at Equinomics Research Private Limited.
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In comparison to its historical average, the Indian market is valued at a premium. The Nifty 50 is selling at a 5% discount to its own long-period average (LPA) with a 12-month forward price-to-earnings ratio (P/E) of 19.3 times, according to Motilal Oswal Financial Services.
According to Kotak Institutional Equities, bond rates and historical prices indicate that the Indian market is still trading at high prices.
