As global indices inch closer to the bear market territory, the benchmark Nifty 50 index is turning out to be a relative outperformer.
Headline indices, including Japan's Nikkei 225, Hong Kong's Hang Seng, and the USA's Nasdaq Composite, have plunged by double digits from their record highs hit barely a month back.
Global investors have been spooked by the weakness in US labour market, which seems to point to a slowing economy, and also by the unwinding of the yen carry trade because of the appreciation in the Japanese currency, noted Vivek Iyer, Rational Equity Partners.
In comparison, the Nifty 50 has is down barely 4 percent from its all time high. So what's giving investors the confidence?
Bullishness in India
A key reason for the resilience of Indian equities is the strength in the domestic economy.
India is projected to grow rapidly at a rate of 6-7 percent in CY2025, while other economies face a potential slowdown due to high interest rates and inflation. Greater tax compliance and reducing the fiscal deficit to manage the debt-to-GDP ratio are additional positives that make India an attractive destination for investments.
“Focusing on production-linked incentives for 'Make in India for the world' and substantial investment in infrastructure to reduce logistics costs will make Indian export-oriented companies more competitive,” as per Sharad Chandra Shukla, Director, Mehta Equities.
Retail inflows
Domestic institutional investors (DIIs), including mutual funds, are flush with money and have been aggressively increasing their exposure to equities. On the other hand, foreign portfolio investors (FPIs) have been selling more often than they have been buying on concerns over expensive valuations.
So far in 2024, FIIs have net bought shares worth Rs 1.32 lakh crore, while DIIs have bought shares worth Rs 2.38 lakh crore.
FII holding has inched lower over the years and domestic liquidity is stronger than ever. FIIs used to own 21 percent of Indian equities several years ago, which has fallen to 16.5 percent presently. Strong domestic liquidity has offset selling by FIIs to the tune of $1.3 billion, said Amar Ambani, Executive Director, YES Securities.
Less of tech
As compared to the global indices, the Nifty 50 doesn’t have a high reliance on technology stocks. Additionally, while certain IT stocks comprise the key index, they are related to IT services, instead of the AI -fuelled chip rally seen in the Nasdaq or KOSPI, stated Deepak Jasani, Head of Retail Research, HDFC Securities. Therefore, when the meltdown in the Magnificent Seven and other AI-related stocks occurred, the impact was not as strong on the Nifty 50.
What lies ahead?
The Nifty index is also susceptible to global market fluctuations as the correlation with the Indian economy has increased over the years. Currently, domestic investors' contrarian buying is providing some insulation. However, persistent global market weakness could negatively affect domestic sentiment and inflows.
The weak Q1 earnings report suggests a slowdown in earnings growth, which is making many analysts question the premium valuations that Indian equities command. Investors are gradually becoming more cautious, shifting their interest from growth stocks to value stocks. As the global uncertainty continues, the buy-on-dip strategy is expected to transition to a sell-on-rally approach, said Vinod Nair, Head of research, Geojit Financial Services.
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