Investors lose ₹60 trillion in little over 100 days; pain to continue

Market veterans expect the pain to last so long as the FPI selling continues amid an uncertain macro environment.

The wealth measured by market capitalization of all stocks stood at ₹473.84 trillion on 27 September, when the Nifty 50 was at a record high of 26,277.35. Since then, the benchmark index has corrected 12% to 23,085.95, resulting in a fall of ₹59.61 trillion in investor wealth to ₹414.23 trillion on Monday.

A fall of more than 10% from highs implies a correction, and one of more than 20%, a bear market.

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Broader markets like the Nifty Smallcap 250 and the Nifty Midcap 150, too, underperformed, falling by 13.5% each since their highs in late September, also contributing to the fall in the market cap.

Why are foreign investors selling?

The sell-off has been led by FPIs who have offloaded cash market or secondary shares worth a net ₹1.85 trillion since October through 12 January amid a falling rupee and rising crude oil prices due to fresh US curbs on Russia, showed data from National Securities Depository Ltd (NSDL) and BSE Ltd.

Meanwhile, domestic institutional investors (DII), led by mutual funds, have net purchased shares worth ₹2.18 trillion from the secondary market over the same period, showed BSE data.

The reason for the fall despite DII purchases matching FPI sales is that DIIs are bidding at lower prices to give the latter exits.

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“Volatility will continue so long as FPIs are selling aggressively,” said Nilesh Shah, managing director at Kotak Mahindra AMC. “DIIs will give them an exit but at lower prices, so the decline could continue. Once FPIs stop (selling) and begin buying, the market will resume its uptrend. It’s good to invest in quality and for the long term to ride through the rough seas.”

However, FPI buying looks unlikely to happen soon with the rupee weakening and crude rising because of rising bond yields in the US ahead of President-elect Donald Trump’s inauguration and the latest round of sanctions imposed by the outgoing Joe Biden administration on Russian tankers and maritime insurers.

“Falling rupee and rising crude is a double whammy for Indian equities and are likely to keep the market volatile with Trump’s inauguration around the corner (20 January) and the impact of his trade and economic policies having global repercussions,” said G. Chokkalingam, founder, Equinomics.

Brent crude has risen by 12% to cross the $80 barrel mark since 27 September. Over the same period, the rupee has weakened 3.4% to a record closing low of 86.58 to the dollar as of Monday. The depreciating rupee reduces FPI’s dollar returns.

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Bond yields in the US have risen to 4.76% from 3.7% in mid-September, when the US Federal Reserve began cutting interest rates for the first time in four years—100 basis points to date to 4.25-4.5%. One basis point is one-hundredth of one percentage point.

The rise comes as, due to tight US labour markets, hopes of more rate cuts, despite the post-pandemic ultra-loose fiscal and monetary policy, are fading.

Rising yields have led to a sell-off in emerging market stocks, bonds and currencies, with global investors pinning their hopes on the safety of the US 10-year paper or dollar.

The longest post-pandemic correction from top to bottom lasted eight months, from 19 October 2021 to 17 June 2022, resulting in m-cap erosion worth ₹34.81 trillion, with the Nifty plumbing 18% from a record high of 18,604.45 to a low of 15,183.40.