Indian Stock Sell-Off: Technical Forces and Global Influences at Play

A Jefferies report suggests the recent decline in Indian stocks is driven by technical factors and the aggressive selling by foreign investors, rather than macroeconomic issues. Market participants believe this correction in high-beta cyclical sectors is rationalized, and future demand may rise due to government measures.

According to a recent Jefferies report, the sell-off in Indian stocks is mainly technical, driven by multiple compressions rather than any significant macroeconomic problems. Notably, small and mid-cap stocks suffered larger declines compared to the Nifty benchmark index, given their higher multiples.

The report by 'Greed & Fear' highlights that aggressive selling by foreign portfolio investors (FPIs) plays a critical role in the market downturn, especially affecting high-beta cyclical sectors such as property, infrastructure, and industrials, which previously outperformed. Market experts suggest that withdrawal from domestic cyclicals is now rationalized, expecting demand to rise following populist measures introduced by the Modi administration in its third term.

Moreover, while monetary tightening by the RBI posed challenges to equity markets, recent policy shifts suggest potential easing. The February 7 policy repo rate cut by 25 basis points marks a change, yet real interest rates remain high. As foreign selling persists, increased domestic mutual fund investments offer promise. The report projects that further easing by the Federal Reserve could assist emerging markets like India. (ANI)

(With inputs from agencies.)