Market Meltdown: Indian stocks lag behind global peers in May – key reasons explained

However, arsenic the period progressed, the scenery swiftly shifted. Optimism began to wane arsenic these factors turned unexpectedly. FPI inflows dwindled, geopolitical tensions resurfaced, and governmental uncertainties intensified, casting a shadiness implicit the antecedently optimistic outlook. 

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As per the caller media reports, a little elector turnout truthful acold successful India's wide predetermination has raised questions astir whether the ruling Bharatiya Janata Party (BJP) and its allies tin execute the landslide triumph predicted by sentiment polls conscionable a period ago.

Meanwhile, the crisp rally successful 2023, which continued during the archetypal 4th of CY24, has led to stretched valuations for the market, prompting investors to unafraid profits. Consequently, benchmark indices, which had initially soared connected the wings of optimism, logged the worst show successful May. 

This downturn evaporated investors' wealthiness astatine an alarming rate, leaving galore startled by the abrupt displacement successful marketplace dynamics. Over the past 5 sessions, the broader marketplace saw a bulk of stocks crook red, with galore of them trading adjacent to their lowest levels successful respective months. 

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The caller sell-off deed the nationalist assemblage banks hard arsenic they faced sector-specific challenges stemming from the Reserve Bank of India's draught guidelines connected task finance. These guidelines suggest that lenders allocate much funds for loans to under-construction infrastructure projects. 

Mid- and small-cap stocks were besides deed hard successful the caller sell-off. Both clocked steadfast gains successful April, aft a crisp downtick successful March, but they couldn't prolong them successful May, starring them to commercialized astatine multi-week lows. 

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Hong Kong leads the rally successful Asia

The Indian market, which had antecedently outperformed its planetary counterparts, experienced a important downturn successful May, resulting successful underperformance. 

Both the Nifty 50 and S&P Sensex dropped by 2.86% and 2.79%, respectively, successful the existent period truthful far, marking their largest monthly declines since August 2023.

Conversely, large Asian indices saw comparatively humble declines successful May. The Nikkei 225 fell by 0.62%, the Topix by 0.76%, and the Kosdaq Composite scale by 0.21%, portion South Korea's Kospi added 1.49%. 

China’s Shanghai Composite scale and Hong Kong’s Hang Seng scale bucked the trend, rising by 1.48% and 6.80%, respectively, with the second hitting a nine-month precocious successful the erstwhile session.

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China's system exhibited signs of recovery, with April information from the country’s customs bureau showing stronger-than-expected maturation successful exports and a surge successful imports. Exports roseate by 1.5% year-on-year, portion imports climbed by 8.4%, resulting successful a commercialized surplus of $72.4 cardinal for the month.

According to marketplace experts, Chinese and Hong Kong markets connection charismatic valuations, with PEs astir 10, successful opposition to India's costly levels, starring to accrued money flows into these markets. 

Smart recovery

In the US, the Dow Jones, S&P 500, and Nasdaq Composite each saw gains successful May pursuing a crisp downturn successful April. The Dow surged 331.37 points successful the erstwhile trading session, closing astatine 39,387.76 and marking its longest winning streak since December.

The S&P 500 and Nasdaq Composite scale ended astatine 1 astir period precocious connected Thursday aft complaint chopped expectations jump. 

Overall, the Dow Jones roseate by 4.35%, the S&P 500 rallied by 3.54%, and the Nasdaq Composite jumped by 4.40% successful May truthful far.

Also Read: U.S. yields steadfast arsenic caller proviso soaked up and CPI successful focus

The latest play jobless claims information has surged to its highest level since August, fueling expectations that the U.S. Fed whitethorn see cutting involvement rates astatine immoderate constituent this year. 

Additionally, UBS estimates a diminution successful ostentation for April, which is scheduled for merchandise adjacent week, further boosting sentiment successful the US markets.

Britain's stocks deed a grounds high 

The Bank of England hinted astatine imaginable involvement complaint cuts arsenic soon arsenic adjacent month, with Governor Andrew Bailey suggesting that much reductions could beryllium connected the horizon. 

The BoE's Monetary Policy Committee maintained the cardinal slope complaint astatine 5.25% connected Thursday, the highest level since 2008 and successful enactment with expectations.

Deputy Governor Dave Ramsden and outer MPC subordinate Swati Dhingra advocated for a chopped to 5%. After cutting rates successful March 2020 arsenic the coronavirus pandemic swept the world, the BoE began raising borrowing costs successful December 2021, earlier than different starring cardinal banks to antagonistic precocious inflation, which peaked astatine 11.1% successful October 2022.

Also Read: BoE holds cardinal involvement rates astatine 16-year high-mark, moves person to cuts

Following the awesome of a imaginable complaint cut, some the FTSE 100 and Stoxx 600 scale reached grounds highs connected Thursday, posting gains of 2.91% and 2.35%, respectively, for the period truthful far.

FPI sell-off spree continues

In May, overseas investors withdrew ₹28,885 crore from Indian equities, marking the largest outflow since January 2024, erstwhile ₹25,744 crore was withdrawn. Throughout May, they continued to beryllium nett sellers successful each six trading sessions.

Also Read: FIIs offload ₹22,858 crore successful 6 sessions: VIX to hawkish Fed—5 cardinal reasons causing bulk selling successful Indian equities

Analysts property the pullback to assorted factors, including the costly valuations of Indian stocks compared to their planetary counterparts, arsenic good arsenic the reallocation of funds to China and Hong Kong owed to their comparatively cheaper valuations.

Disclaimer: We counsel investors to cheque with certified experts earlier making immoderate concern decisions.

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Published: 10 May 2024, 12:55 PM IST