Stock markets investors turn wary before budget as risks rise

Market


Stock investors in India are bracing for challenging weeks before the unveiling next month of the government’s union budget as economic growth retreats from a peak and a resumption of selling by foreigners weighs on local shares.

After beating most Asian and emerging market peers last year, India’s $3.4 trillion stock market is already overshadowed in 2023 as China’s reopening attracts global funds to the North Asian market after a record selloff. 

History suggests India’s shares are likely to see muted trading ahead of the federal budget reading, usually held on Feb. 1, with data compiled by Bloomberg Intelligence showing an average drop of 1% since 2003 in the month before the budget.

This year, China stocks are trading at much cheaper valuations than their South Asian peers, prompting global funds to opt for a “tactical rotation,” according to Bloomberg Intelligence analyst Nitin Chanduka. “India trades at a forward PE of 20 times, almost double that of Chinese equities. The choice is clear.”

India’s benchmark S&P BSE Sensex Index has fallen 5% as of Tuesday’s close from an all-time high in December, with foreign funds net selling $595 million of local equities this month to Jan. 9. The nation’s stocks outperformed most major markets during the last two years as individual investors piled in during the pandemic. 

“The selloff by foreign investors is gathering pace but the worry is that they are reducing positions across sectors, including banks,” said Abhay Agarwal, a fund manager with Mumbai-based Piper Serica Advisors Pvt. India received a high share of global flows during 2022 but that’s unlikely to be repeated this year, he added.

“The biggest drag on the market in the near-term is the sustained selling by FIIs for thirteen continuous sessions, which has taken the cumulative cash market selling to 16587 crores. Higher valuations in India and attractive valuations in markets like China are nudging the FIIs to sell in India and move money to cheaper markets. Even though this is a short-term challenge, this can also turn out to be an opportunity for long-term investors,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“Last year, too, FIIs sold heavily in early months and DIIs/ retail, who absorbed all FII selling, made big profits when the market recovered. Bank stocks are down due to FII selling, but the segment is doing well and Q3 results will be good. Market will respond to the results.”

 


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