At the beginning of May, the Indian market experienced a surge in optimism, driven by several key factors. Positive sentiment was bolstered by strong Foreign Portfolio Investor (FPI) inflows, easing geopolitical tensions in the Middle East, and the expectation of continued political stability in the upcoming Lok Sabha elections.
However, as the month progressed, the landscape swiftly shifted. Optimism began to wane as these factors turned unexpectedly. FPI inflows dwindled, geopolitical tensions resurfaced, and political uncertainties intensified, casting a shadow over the previously optimistic outlook.
Also Read Akshaya Tritiya 2024: Gold price rises ₹40,000 in five years. Experts see up to ₹85K peak next year
As per the recent media reports, a lower voter turnout so far in India’s general election has raised questions about whether the ruling Bharatiya Janata Party (BJP) and its allies can achieve the landslide victory predicted by opinion polls just a month ago.
Meanwhile, the sharp rally in 2023, which continued during the first quarter of CY24, has led to stretched valuations for the market, prompting investors to secure profits. Consequently, benchmark indices, which had initially soared on the wings of optimism, logged the worst performance in May.
This downturn evaporated investors’ wealth at an alarming rate, leaving many startled by the sudden shift in market dynamics. Over the past five sessions, the broader market saw a majority of stocks turn red, with many of them trading close to their lowest levels in several months.
Also Read: Bear market on the horizon? Deepak Shenoy weighs in on incoming ‘doomsday’
The recent sell-off hit the public sector banks hard as they faced sector-specific challenges stemming from the Reserve Bank of India’s draft guidelines on project finance. These guidelines propose that lenders allocate more funds for loans to under-construction infrastructure projects.
Mid- and small-cap stocks were also hit hard in the recent sell-off. Both clocked healthy gains in April, after a sharp downtick in March, but they couldn’t sustain them in May, leading them to trade at multi-week lows.
Also Read: 65% of Mutual Fund Investors Struggling to Beat Benchmarks, Dezerv Study Reveals
Hong Kong leads the rally in Asia
The Indian market, which had previously outperformed its global counterparts, experienced a significant downturn in May, resulting in underperformance.
Both the Nifty 50 and S&P Sensex dropped by 2.86% and 2.79%, respectively, in the current month so far, marking their largest monthly declines since August 2023.
Conversely, major Asian indices saw comparatively modest declines in May. The Nikkei 225 fell by 0.62%, the Topix by 0.76%, and the Kosdaq Composite index by 0.21%, while South Korea’s Kospi added 1.49%.
China’s Shanghai Composite index and Hong Kong’s Hang Seng index bucked the trend, rising by 1.48% and 6.80%, respectively, with the latter hitting a nine-month high in the previous session.
Also Read: Oil rises 1% to hit 1-week high on demand optimism in China, US; Brent nears $84
China’s economy exhibited signs of recovery, with April data from the country’s customs agency showing stronger-than-expected growth in exports and a surge in imports. Exports rose by 1.5% year-on-year, while imports climbed by 8.4%, resulting in a trade surplus of $72.4 billion for the…
Read More: Market Meltdown: Indian stocks lag behind global peers in May – key reasons