Recently, the Indian stock market has been volatile, with the India VIX index rising by about 35% in four May sessions.
Lately, the Indian stock market has experienced fluctuations. The India VIX index, which measures volatility, shot up by around 35% over just four May sessions. In April, it saw a marginal increase of 0.30%, whereas in March, it dropped by 18%. Despite opening higher on May 7, both the Sensex and Nifty indices dipped by nearly 1%. Additionally, the BSE Midcap index saw a decline of over 2%, and the BSE Smallcap index fell by 2%, coinciding with a nearly 6% increase in the India VIX to 17.6 levels.
Why stock markets are volatile: Major reasons why
FIIs selling: The recent ups and downs in the Indian stock market might be due to foreign institutional investors (FIIs) selling off Indian stocks. According to NSDL data, FIIs have sold Indian equities worth ₹982 crore in the last three trading sessions.
Lok Sabha elections effect: During the Lok Sabha elections, the relatively low voter turnout may have caused concern among retail investors. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggested that the uncertainty surrounding the lower-than-expected turnout could be significant. There’s a perception that the expected smooth victory of the ruling party is now less certain. As the market had already factored in a BJP/NDA win, this uncertainty might be leading to apprehension among investors, causing a shift in the bullish sentiment.
Premium valuation: The stock market is currently trading at a higher valuation compared to its historical average. Motilal Oswal Financial Services observed that the Nifty 50 has a 12-month forward P/E ratio of 19.3 times, indicating a premium valuation. Similarly, Kotak Institutional Equities highlighted that the Indian market remains at costly levels.
Q4 earnings: Q4 earnings reports of numerous companies have been disclosed, and Kotak has suggested that the stock market might experience volatility due to the absence of positive surprises. According to Kotak, some companies have reported negative surprises. Weakness persists in sectors such as consumption and outsourcing, while financials remain robust. Despite high market expectations and rich valuations, there have been limited improvements in earnings, creating a notable contrast.
Conclusion
In short, the recent volatility in the Indian stock market is driven by several factors. Foreign institutional investors selling off Indian equities, uncertainty surrounding the Lok Sabha elections, premium market valuations, and mixed Q4 earnings reports are all contributing to the fluctuations. Investors should closely monitor these factors for insights into market movements and adjust their strategies accordingly.
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