As the benchmark Sensex at BSE fell 1.9% to a near-eight-month low, and the Nifty fell 1.86% to 22,124, market experts assured investors that the fundamentals of the Indian economy remained strong. Nilesh Shah, MD, Kotak Mahindra AMC, said investors should continue to invest in a gradual and staggered manner.
The crash was the result of multiple factors, Shah said. “A bit of earning disappointment and high valuations have been key reasons for foreign investors to go out of Indian markets. But there are several other factors that pushed them to take that call,” he said.
Among them were US President Donald Trump’s call for investments in America, and anticipated higher profits after tax (PAT) due to possible tax cuts. Also, the fact that returns on US high-yield bonds are equal to the returns on Indian equity has led some investors to invest in the US.
“On the domestic front, there has been a slowdown in the Indian economy,” Shah said. “Corporate results have been slightly below expectations — and they came when valuations were high, and weakened the investor sentiment.”
Anish Tawakley, Co-CIO, Equity, ICICI Prudential Mutual Fund, said domestic factors, not global ones such as Trump’s threat to impose trade tariffs, were primarily responsible for the decline in markets over the past few weeks.
“I don’t think tariffs are the most important factor. The most important factors are domestic. The markets are not reacting to the external world only. The reality is that the Indian economy has slowed down in the past six months,” Tawakley said at the latest session of the IE Explained.Live show.
“Also, [stock] valuations have been on the higher side, and we have been saying that the mid- and small-cap side of the market was expensive, and a correction was due,” Tawakley said.
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Shah said the markets could continue to fall for as long as foreign portfolio investors (FPIs) keep selling. “They will stop once the selling stops,” he said.
Shah said it was important to point out that FPIs are selling because there are buyers in the market. “Domestic Institutional Investors (DIIs) have been buying as the retail inflow continues,” he pointed out.
According to Shah, high net-worth individuals (HNIs) are more worried about the fall in the markets. “Retail investors are investing regularly, so there is more stability on the small-investor front,” he said.
On the choice of selling or buying that investors are faced with, Shah said: “Following the correction in valuations, expected returns across many sectors have gone up. There is no point selling unless you are heavily overweight on momentum stocks.”
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Investors should consider investing in a staggered manner, as more corrections may come following the sell-off by FPIs, he said. “The return on equity in India is one of the highest in the world, our fundamentals are good, and once the FPIs stop selling, the prices will not remain where they are.”
Investors should go for high-quality stocks or large-cap schemes of mutual funds instead of momentum stocks or small-cap or mid-cap schemes, Shah said. “They can look at multi-asset allocation funds, which act as private bankers to retail investors,” he said.
© The Indian Express Pvt Ltd
