The bulls charged back on Wednesday with a vengeance, catapulting the Sensex over 800 points higher and reversing the damage from the previous session. But lurking behind the bounce is a cold, hard number: Rs 10,016 crore—the amount foreign institutional investors ( FIIs) yanked out of the Indian stock market just a day ago. The message is clear: the market may have recovered, but the risk hasn't retreated.
“This is a major reversal of their big buying in May,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit. “If this persists, it has the potential to impact the market.”
He minced no words in describing the market mood—"a spike in uncertainty and risk is impacting the market rather unexpectedly." The dramatic Rs 10,000-crore selloff, he warned, is not an isolated event but possibly triggered by a volatile global cocktail: a US credit rating downgrade, bond yield spikes in both America and Japan, resurgent Covid cases in India, and chatter of a possible Israeli strike on Iran.
The jitters in the bond market are being taken seriously. “The 30-year JGB yield spiking to 3.14% in the backdrop of the US 30-year at 5% sends a feeling of disquiet,” Vijayakumar noted. “Investors have to exercise caution.”
Also read | Mystery on the tracks! The curious case of rail stocks riding the defence wave without a ticket
Domestic brokerage Kotak Institutional Equities has also warned that the sharp rally in Indian equities over the past few weeks belies the extant realities of chaotic global trade, limited progress in India-US trade negotiations, weakening earnings trajectory and lofty valuations.
"The market is again in the grips of irrational exuberance with the market quick to discount any half-baked narrative (defense being the latest one). The market’s recurring tendency to buy into narratives is astonishing given the history of narratives. Many had emerged and collapsed in the past 2-3 years," warns Kotak's Sanjeev Prasad.
March quarter earnings season also did little to support the market, with Prasad describing it as "broadly muted". Nifty50 profits grew 7.5% YoY, but the bulk of the outperformance was driven by banks and downstream oil marketing companies.
However, analysts say that as the 10-year bond yield spread of India over the US has narrowed down to a two-decade low of ~175bps, which was last seen during 2004-05, the risk-premium for India is at an all-time low, thereby, warranting elevated P/E valuations for India, assuming relative macro strength continues.
"Relative macro strength of India is evidenced by the recent downgrade of US credit rating by Moody’s, while India's rating has seen upgrades (ratings by DBRS and ratings outlook by S&P). Twin deficits (fiscal and current account) and public debt for US have deteriorated relative to India in the recent past, while inflationary risks are higher for the US due to tariff wars. On the growth front as well, US GDP growth went into contraction during Q1CY25 due to tariff-related impacts, while India GDP growth is likely to be minimum above the 6% mark," said Vinod Karki of ICICI Securities.
In the meantime, Morgan Stanley said the drawdown in Indian stocks from the September 2024 high is an opportunity to buy India's long-term story and said its new Sensex target of 89,000 by June 2026 suggests that the index would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x.
"Our new BSE Sensex target of 89,000 implies upside potential of 8% to June 2026. This level suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment," Morgan Stanley's Ridham Desai said.
Also read | Hunting for stocks to buy? 36 top bets from 8 portfolios that ruled April
“This is a major reversal of their big buying in May,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit. “If this persists, it has the potential to impact the market.”
He minced no words in describing the market mood—"a spike in uncertainty and risk is impacting the market rather unexpectedly." The dramatic Rs 10,000-crore selloff, he warned, is not an isolated event but possibly triggered by a volatile global cocktail: a US credit rating downgrade, bond yield spikes in both America and Japan, resurgent Covid cases in India, and chatter of a possible Israeli strike on Iran.
The jitters in the bond market are being taken seriously. “The 30-year JGB yield spiking to 3.14% in the backdrop of the US 30-year at 5% sends a feeling of disquiet,” Vijayakumar noted. “Investors have to exercise caution.”
Also read | Mystery on the tracks! The curious case of rail stocks riding the defence wave without a ticket
Domestic brokerage Kotak Institutional Equities has also warned that the sharp rally in Indian equities over the past few weeks belies the extant realities of chaotic global trade, limited progress in India-US trade negotiations, weakening earnings trajectory and lofty valuations.
"The market is again in the grips of irrational exuberance with the market quick to discount any half-baked narrative (defense being the latest one). The market’s recurring tendency to buy into narratives is astonishing given the history of narratives. Many had emerged and collapsed in the past 2-3 years," warns Kotak's Sanjeev Prasad.
March quarter earnings season also did little to support the market, with Prasad describing it as "broadly muted". Nifty50 profits grew 7.5% YoY, but the bulk of the outperformance was driven by banks and downstream oil marketing companies.
However, analysts say that as the 10-year bond yield spread of India over the US has narrowed down to a two-decade low of ~175bps, which was last seen during 2004-05, the risk-premium for India is at an all-time low, thereby, warranting elevated P/E valuations for India, assuming relative macro strength continues.
"Relative macro strength of India is evidenced by the recent downgrade of US credit rating by Moody’s, while India's rating has seen upgrades (ratings by DBRS and ratings outlook by S&P). Twin deficits (fiscal and current account) and public debt for US have deteriorated relative to India in the recent past, while inflationary risks are higher for the US due to tariff wars. On the growth front as well, US GDP growth went into contraction during Q1CY25 due to tariff-related impacts, while India GDP growth is likely to be minimum above the 6% mark," said Vinod Karki of ICICI Securities.
In the meantime, Morgan Stanley said the drawdown in Indian stocks from the September 2024 high is an opportunity to buy India's long-term story and said its new Sensex target of 89,000 by June 2026 suggests that the index would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x.
"Our new BSE Sensex target of 89,000 implies upside potential of 8% to June 2026. This level suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment," Morgan Stanley's Ridham Desai said.
Also read | Hunting for stocks to buy? 36 top bets from 8 portfolios that ruled April
You may also like
Russia intercepts 159 Ukrainian drones in 12-hour span
Oasis release more tickets for September - but it's bad news for some desperate fans
I tried Aldi's new mystery fizzy drinks and got the flavours completely wrong
South Korea's exports to US, China likely to decline further
Keir Starmer is a globalist sacrificing UK economy at altar of Europhilia
