Indian Stock Market Falls as Global Uncertainty and FPI Rules Impact Sentiment
New Delhi, India – Indian stock indices took a sharp hit on Friday, the last trading day of the current week, with all sectoral indices closing deep in the red. The banking and energy sectors were the hardest hit.
Reasons for the Sell-Off
Ajit Mishra, SVP of Research at Religare Broking, explained, “The recent weakness in U.S. markets has stalled the momentum in Indian markets, causing participants to become cautious ahead of the upcoming jobs data.”
Market expert Vijay Chopra added, “The correction of 2 to 3 percent is not a fall, as the markets are trading at an all-time high. The reason for this selling is the reports that non-registered FPIs will not be able to operate in the market, which is also creating pressure. The markets are also sensitive ahead of the Fed rate cuts; if the Fed announces a rate cut, the markets will rebound strongly.”
SEBI’s New Rules
Today marks the deadline for foreign investors to disclose beneficial owners. According to SEBI, failure to comply may result in the disqualification of FPIs from investing in India, and they would need to wind up their investments. This move is part of SEBI’s broader effort to curb the misuse of the FPI route by anonymous or “benami” investors, thereby strengthening market integrity.
Non-compliant FPIs, especially those that lack proper Know Your Customer (KYC) documentation, have been offloading their holdings, contributing to today’s broad market sell-off, said analysts.
Global and Domestic Factors
Joseph Thomas, Head of Research at Emkay Wealth Management, noted, “The domestic markets touched record highs at the start of the week and subsequently ended the winning streak as the week progressed. The overheated segments of the markets have seen some profit booking and may be an indicator that earnings would incrementally dictate price movements.”
From a global perspective, the focus is now on the economic data coming from the US to gauge the direction and the quantum of Fed interest rate movement in the upcoming monetary policy meeting. US Federal Reserve Chair Jerome Powell indicated that it was time for the US central bank to reduce interest rates as inflation rates were aligning with its target. However, he stopped short of giving a hint on the quantum of interest rate cut.
Domestically, political risk is rising with state elections coming up and with a major ruling coalition partner hobnobbing with opposition leaders, said Ajay Bagga, a veteran banking and market expert.
Doubts Revealed
Stock Market -: The stock market is a place where people buy and sell shares of companies. It’s like a big marketplace for company ownership.
Indices -: Indices are like scoreboards that show how well a group of stocks are doing. For example, the Sensex and Nifty are popular indices in India.
Sectoral Indices -: These are scoreboards for specific parts of the economy, like banking or energy. They show how well stocks in that sector are doing.
FPI -: FPI stands for Foreign Portfolio Investors. These are people or companies from other countries who invest in Indian stocks.
SEBI -: SEBI is the Securities and Exchange Board of India. It’s like a referee for the stock market, making sure everyone plays fair.
Beneficial Owners -: These are the real people who own the investments, even if someone else is managing them.
U.S. Fed -: The U.S. Fed is the Federal Reserve, which is like the central bank of the United States. It helps control the country’s money and interest rates.
Rate Cuts -: Rate cuts mean lowering the interest rates, which can make borrowing money cheaper and can affect the stock market.
Political Risks -: These are uncertainties in the government or politics that can affect the economy and stock market.
State Elections -: These are elections held in different states of India to choose local government leaders.