Yesterday, the Sensex, or the Bombay Stock Exchange index fell by 600 points. It was kind of unexpected since it had turned around its southward movement over the past few sessions. Once, the pundits began to explain the reasons behind the fall, there was a feeling of hollowness, and inexplicability about them. For example, one of the factors was the two-day meeting of the US Federal Reserve Board, which was expected to announce another minor rate cut. But then this was expected for weeks, and one thought that the stock markets, like it does with future expected events, had discounted it. Indeed, one of the reasons for the earlier rises was that the minor rate cut was unlikely to change things materially in the form of foreign outflows, which are turbo-charged when the US interest rates seem attractive, and the money flies to a safer less-risky haven.
Another factor that the experts harped on was the fall of the rupee, and it having crossed the Rs 90 mark against the dollar. One can partially accept it. But then again, the rupee breached Rs 90 days ago, and has firmed up since then, or at least has not gone down further, as the Reserve Bank of India stepped in to support the currency. One thought that the investors would be enthused by the intervention. No one can say. Maybe they believe the doomsayers, who contend that it is a matter of when, and not if, for the rupee to fall to Rs 100 a dollar. Maybe the investors were more concerned by the central bank’s opinion, which chimed with that of the finance minister, rather than the former’s actions. In the recent past, both maintained that they have no target for the rupee, and the currency needs to find its stable, steady, and appropriate level.
The stock markets are uncertain about the India-US trade deal, which has been delayed. Thus, they reacted to the growing apprehensions. One can flip this argument, and contend that an American delegation is on its way to New Delhi to discuss the tariffs. This is good news as it shows an urgency among the two nations. Indian ministers have repeatedly claimed that an agreement will be in place by December 2025 since most of the issues are finalised, and the two sides need to dot the i’s, and cross the t’s. Of course, the investors are peeved that the earlier deadline was November 2025. But that one passed more than a week ago. Why should the Sensex and Nifty crash on December 8? This factor seems to be a non-factor that was cooked up by some of the experts as a reasonable factor to provide some logic to the market madness on Monday.
Several analysts reiterated a view that the Indian valuations were overstretched. For several months, in fact this entire year, valuations were raised as a worry. This is one of the major reasons why the markets behaved so erratically during 2025, and Indian equities were among the worst performers among Asian peers, and emerging markets. Hence, a concern about a persistent past concern, which has shaken up investors for more than 11 months, cannot be a legitimate one to explain a one-day fall of 600 points. Another twisted logic: Same analysts say in the same breath that steady (domestic) inflows, and long-term retail participation suggest continued optimism. In addition, high valuations may persist, supported by investor confidence, and consistent domestic equity inflows. Please explain clearly whether valuations are stretched or not, whether investors will sell to book profits or not, or whether the high valuations do not matter because of the steady inflows. We are suitably confused.
To add to the confusion and uncertainty, the stock markets went down on Monday because of the steady outflows by foreign investors. For months, and throughout this year, the foreigners have proved to be net sellers in the secondary market. Yet, they have aggressively participated in the IPOs (Initial Public Offerings), which provides clear hints that they feel the listed stocks are overvalued, and there are chances to earn higher returns on new stocks. But again, this trend is evident for the past several months, and is nothing new. It is not that on Monday the foreigners dumped the stocks. One can add this as a factor if the Indian equities had consistently gone down due to this regularly-occurring trend. But stocks went up in the past few sessions, and the same analysts remarked that this was the great turnaround, which would push the Sensex past 1,00,000 points by December 2026. Moreover, one is unsure which section is more important, foreigners or domestic investors.
At one level, the net selling by the foreigners pulls down the market indices. At another, there is a feeling that valuations will remain stretched because of huge domestic inflows. There is a tussle between the two, and one is not sure who will win. Both cannot, or maybe they can. The foreigners will book profits, and the locals will take valuations to higher levels to book profits later. A clear win-win.
