Why Nifty is falling and for How long ?

 

FIIs are selling and Indian markets are falling like a pack of cards. Well, don’t blame Mr Trump or China since it is clear that funds are not going to China but are getting into the pockets of the U.S. only. We have been reading a lot of stuff throwing pots and pans on China and finding justification rationales for the market fall, searching same in global markets. But the real truth is that Indian markets and economy are having some hiccups internally which are part of a broader market and GDP growth. We have become accustomed to continuous rallies where lame horse also wins the race.  We have seen IPOs coming up of car dealers also but truly speaking it is not a Japsal Bhatti show Called FLOP SHOW. It is a market where domestic rationales of growth are required to justify the numbers.

Recent data indicates that over half of the Nifty 50 companies reported net profits below analysts' expectations for the July-September 2024 quarter, marking the weakest performance since the onset of the COVID-19 pandemic in March 2020.Out of 41 firms of the Nifty Index that have announced September quarter earnings, 22 have fallen short of profit estimates. Further, among these 22, 10 companies also reported revenue below expectations. Meanwhile, of the 18 companies that exceeded profit estimates, six posted revenue figures below the forecast. PSU stocks have been falling like a knife with no end of it. The reasons behind the same are mostly domestic.

What we are not able to Understand?

 We are not able to know that in H1 the government spending has been less and the impact of the same is less consumption from the government end. This is well reflected in the quarterly results of the NIFTY 500 companies. The Indian government's capital expenditure has experienced significant fluctuations in recent years. In the fiscal year 2023-24, capital expenditure was estimated at approximately ₹9.48 trillion, marking a 28% increase over the previous year. Over the past four years, it has achieved a compound annual growth rate exceeding 29%, an unprecedented achievement.

However, in the first quarter of 2024-25, capital expenditure declined by 35%, primarily due to the general elections and the delayed presentation of the full budget in late July. Although the second quarter saw a 10% increase in spending, it was insufficient to offset the first quarter's shortfall, resulting in an overall 15% decline in capital expenditure for the first half of 2024-25. Now when the govt spending is less the private sector is completely dependent on the consumption of the government and hence the same in reflected.

To meet the annual growth target of 17% in capital expenditure, the government faces the challenge of significantly increasing spending in the remaining months of the fiscal year. This will require a concerted effort to accelerate project implementation and fund allocation to achieve the desired growth rate. But the first half of 2024-25 has seen the major states’ capital expenditure decline by about 12 per cent. In other words, the entire government system in the country is facing a kind of bottleneck in stepping up its capital expenditure. Hence corporate and PSU both have suffered due to the slow and weak consumption demand coming from the government spending. This has led to a significant impact on the NIFTY 500 companies.

Political Impact 

On the political front, the way state elections have been fought speaks loudly the current government have weak standpoints and the same has emanated from the election results where the markup of 400 was missed. The impact of the same is now getting reflected in the confidence levels and business spending side.

If we dig deeper we find that in states where most of the government spending has been in the last 4 years, the biggest drop has come up from the same states in the H1 of 2024-25, like Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Gujarat, Madhya Pradesh, Uttar Pradesh, Uttarakhand, and Telangana.

Now the other part of the FII’s not finding value of appreciation in the market is that if Mr. Trump comes up with heavy tariffs on various countries like Mexico etc then substantial manufacturing and higher cost of purchase will be required at home ( U.S) hence having funds in your pocket is a wise decision rather than keeping invested in superficial, unrealistic market expectation of returns from India.

If FII’s keep running away and the market remains like this then every fall people and DIIs will buy but at one point in time they will run out of the same and every cheap will head towards the cheapest.

The market needs significant profit opportunities and not just DII’s free money driven by wrong valuations chasing short-term returns without being backed by strong valuation rationales. 17cr demat account holder is not a rationale neither is Rs 25000 cr SIP boos since we all know the net SIP numbers are below Rs 10000cr. Further, if the market remains in the zone for a few more months then profit booking by domestic investors cannot be ruled out and they will also prefer to remain in cash.

Fall of IPO

In between did you check about the price fall of the IPOs where one has invested in the CY -2024 till now? Well lucky and clever the ones who exited and for the ones who are holding God Bless them. Well, they have now become long-term investors.  Recent data indicates a significant decline in Foreign Institutional Investors (FIIs) participation in India's initial public offerings (IPOs) during November 2024. FIIs accounted for only 15% of cumulative bids for IPOs launched this month, a sharp drop from over 100% in September and 50% in October.

In monetary terms, FIIs contributed approximately ₹2,900 crore to IPO bids in November. This is a stark contrast to October, where they invested ₹19,842 crore across six IPOs totalling ₹38,686 crores. In September, FIIs invested ₹11,172 crore in 12 IPOs with a combined size of ₹11,058 crore, with investments surpassing IPO values in some cases due to oversubscription. This trend suggests a cautious approach by FIIs towards the Indian primary market in November, possibly influenced by broader economic factors and market volatility.

Visit your Mutual Fund Advisor 

In the last 4 years, many investors have moved out from Mutual Funds and become stock gurus. Well, every bull market ends with losers. For your kind information, this is the time also to revisit your mutual fund investments and re-align them as per your risk profile and asset allocation. Please dont be blind based on the notion that you have invested in the top 10 Mutual Funds schemes of last year or last 4 years.   As per the below study every top-performing scheme's ranking changes in the next 2 years.

Summing up Indian markets need rationales at home. SEBI also has been chasing F&O trades and one cannot ignore that every policy has an impact on the business and market at one point in time.   The only advice will be to speak to your financial advisor and follow his advice and your asset allocation. Being in cash for some time will not depreciate your hard-earned money but will give you the power to make long-term wealth just by Buying at the right time. Further, avoid making wild guesses about the falls of the market.