Sustained FII (Foreign Institutional Investors) selling has been putting pressure on the Indian stock market in recent days, with FII selling reaching a staggering Rs 18260 crores so far this month. This trend is expected to continue as long as valuations remain high and US bond yields remain attractive.
One of the main reasons behind the FII selling is the relatively high valuations in the Indian market, even after the recent pullback. The Nifty, a benchmark index for the Indian stock market, is trading at around 20 times FY 24 earnings, making it the most expensive market in the world. This high valuation makes it difficult for FIIs to justify aggressive buying, especially when the US 10-year bond yield stands at around 4.46 percent and the dollar index is above 105. These factors make investing in the US more appealing for FIIs compared to the Indian market.
However, while the FII selling may be a cause for concern for some investors, it can also present an opportunity for domestic investors. Domestic investors do not have to worry about the impact of the dollar index and US bond yields on their investments. When high-quality stocks in performing sectors such as banking and capital goods experience a decline due to FII selling, it can be an opportune time for domestic investors to buy these stocks at attractive prices. By taking a long-term view, domestic investors can potentially benefit from handsome gains as the market eventually recovers.
It is worth noting that the weakness in the S&P 500, one of the most widely followed stock market indices in the world, can also impact the Indian markets. So far in September, the S&P 500 is down 4.2%. If this weakness in the US market persists, it could weigh on the Indian markets as well. In such a scenario, investors may prefer to wait and observe clear trends before making any significant investment decisions.
In conclusion, the sustained FII selling has been a drag on the Indian stock market as valuations remain high and US bond yields are attractive. However, this can create an opportunity for domestic investors to buy quality stocks at lower prices. It is essential for investors to carefully analyze the market conditions and make informed decisions based on their investment goals and risk appetite.