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A months-long selloff in Indian stocks is showing few signs of abating, as a gauge of smallcap shares stretched its losses from a September peak to twenty% before dip-buying helped it pare some decline.
The NSE Nifty Smallcap 250 Index narrowly missed entering a bear market because it slumped as much as 3.9% on Tuesday before closing 1.8% lower. The gauge had dropped 3.7% the day before today. The NSE India Volatility Index, also referred to as the fear gauge, rose to the best level since August on Monday.
Indian stocks have suffered in recent months as concerns over a slowdown in economic in addition to earnings growth have seen foreign funds exit the market. Small- and mid-cap stocks appear to be bearing the brunt of the newest slide as risk-off moves deepen amid high valuations.
Overseas investors have withdrawn greater than $19 billion from the market on a net basis because the end of September, with over $7 billion of outflows happening in January alone.
“There may be panic like situation amongst retail investors,” said Vikas Gupta, chief investment strategist at Mumbai-based OmniScience Capital. Individual investors typically put money into shares of small-sized firms which have delivered stellar returns lately and concerns over their valuations and growth outlook are catching up, he said.
The smallcap gauge jumped greater than 26% in 2024 following a 48% surge within the previous yr. The index has slumped greater than 14% in January and is on track for its biggest monthly fall since March 2020. It’s now trading 22 times its 12-month forward earnings, down from a peak of 26 in December.
“We’re deploying money in our portfolio” after selling some holdings in final months of last yr, said Abhay Agarwal, a fund manager with Piper Serica Advisors Pvt. Among the firms in small- and mid-cap space have dropped greater than 20% despite reporting good earnings, making them attractive, he added.
India was a darling for global equity investors until just just a few months ago, threatening even to topple China in emerging-market indexes, as a pandemic-era consumption boom and the federal government’s strong give attention to infrastructure creation boosted the market in addition to corporate profits. Nonetheless, an ensuing demand slowdown amid high inflation and rates of interest has weighed on the economy, with growth seen sliding to a four-year low.