Market Turbulence: Unpacking FIIs’ Intense Sell-Off of Indian Equities Amid Stock Market Crash

• The Indian stock market has been underperforming in May due to relentless selling by Foreign Portfolio Investors (FPIs).
• Political uncertainties and the ongoing election process contribute to the market weakness.
• Despite the market crash, experts believe that political stability in India will lead to a market bounce back.

Explore the factors contributing to the recent stock market crash in India, including relentless FPI selling and political uncertainties, and understand the potential for a market bounce back.

Relentless FPI Selling and Political Uncertainties

Foreign Portfolio Investors (FPIs) have been selling equity relentlessly in the cash market, contributing significantly to the underperformance of the Indian stock market. The lower turnout in the first three phases of elections has led to debates on its impact on the fortunes of the ruling dispensation and the Opposition alliance. The market had largely discounted an NDA/BJP victory, and the new development is causing some jitters contributing to the market weakness.

Comparative Market Performances

During the one-month period from April 11th to May 11th, the Indian stock market underperformed compared to the S&P 500 and Stoxx 50, which appreciated by 1.04 percent and 1.07 percent respectively. In contrast, Nifty fell by 2.06 percent. Significant outperformance was registered by Shanghai Composite and Hang Seng indexes, with Shanghai composite appreciating by 3.96 percent while Hang Seng spiked by 10.93 percent during this period.

The China Effect

China’s economic issues have been impacting their stock markets for a long time. However, a reversal of this long-term trend has been observed in the last month, with the Shanghai and Hang Seng markets outperforming and attracting investors back to Chinese shares. This has led to FPIs selling in expensive emerging markets like India and buying cheap Chinese stocks.

Conclusion

Despite the current market crash, the base case scenario is political stability in India. As clarity emerges on the political front, the market is likely to bounce back. DII, HNI and retail buying has the potential to effectively counter FPI selling, forcing a turnaround in the market. Therefore, investors can exploit the weakness in the market to accumulate high quality large caps which are fairly valued now.