Market Moves Unveiled: What’s Next for Investors?

Equity markets often have an uncanny ability to baffle even the most experienced investors. A common belief is that institutional players—especially foreign institutional investors (FIIs)—have access to insights that retail investors lack. The past few months seem to reinforce this notion. FIIs have been on a selling spree, leaving many retail investors speculating that the mantra behind this move was ‘Buy China, Sell India’. They reasoned China’s action based on the fact that it has rolled out a robust stimulus package.

This package is aimed at reviving its stock and property markets, sparking a dramatic 24 per cent rally in its benchmark equity index in just one week. So, the assumption was that the FIIs were reallocating funds to ride this wave. However, a closer examination of the available data tells a different story. Despite the rally in Chinese equities, there have been no significant FII inflows into the Chinese markets. Instead, the real destination for these funds has been the US equity market, which has seen a stellar performance.

Optimism around strong economic indicators and the potential re-election of a pro-market leader like Donald Trump has made the US market a magnet for global capital. With the US now commanding a whopping 67 per cent share of the MSCI All-Country World index, it has become clear where the big money is flowing. The exodus from Indian equities isn’t solely about external dynamics. The September earnings’ season revealed a slowdown in corporate profits, reflecting a broader deceleration in the Indian economy, which hit an 18-month low.

FIIs likely anticipated this downturn before the numbers became public, taking positions accordingly. Many investors are wondering if this is a temporary blip or a prolonged downturn for the Indian economy. History offers some perspective. Post-pandemic, Indian consumers embraced easy financial conditions, spurring a borrowing and spending spree. Combined with governmentled fiscal consolidation and infrastructure investments, this propelled the GDP growth to an impressive 7 per cent average over the last couple of years.

However, 2023 marked a turning point. Stricter lending norms by the Reserve Bank of India and reduced government spending dampened the economic momentum, leading to lower GDP growth. Historically, consumption cycles tend to span about eight quarters—four of expansion followed by four of contraction. With around two quarters of consumption slowdown already behind us, this phase may persist for a few more quarters.

Meanwhile, despite the economic headwinds, the equity markets are forward-looking. Historically, markets tend to recover before the economy does, and we might see some resurgence as early as the first quarter of next year. In the current environment, Large-Cap stocks present a compelling opportunity, offering better valuations and a stronger margin of safety. As such, this issue’s cover story dives deep into the growth potential and valuations of stocks across market capitalisations.

Our special feature presents a half-yearly review of the top 1,000 companies by market capitalisation, equipping you with insights into the best-performing sectors and companies in today’s challenging market. As you navigate this period of uncertainty, staying informed is your greatest asset. Let this guide empower your investment decisions, aligning them with your long-term goals. At a time when volatility has become the name of the game, it is best to give some thought before leaping into the turbulent waters of investing. Stay tuned, stay wise!

RAJESH V PADODE
Managing Director & Editor