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Home National

Stock market falling before Lok Sabha election results. These are some of the reasons..

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.

Prashant Bhardwaj by Prashant Bhardwaj
7 May 2024
in National
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Stock market falling before Lok Sabha election results. These are some of the reasons..
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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.

Also read: Former Congress leader Radhika Khera, Actor Shekhar Suman join BJP

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.

Also read: SC rejects Arvind Kejriwal interim bail plea following arrest

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.

Also read: “Operational Control” over Rafah crossing Egypt & Gaza strip; Delegation Scheduled

Tags: Indian stock exchangeLok sabha electionsStock Market
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