Market Decline Driven by West Asia Tensions and FPI

Why in the news?

Domestic stock markets fell sharply due to concerns over foreign portfolio investor outflows and escalating conflicts in West Asia, impacting investor sentiment and sector performance.

Market Decline Driven by West Asia Tensions and FPI

Market Decline Due to West Asia Tensions and FPI Concerns:

  • Domestic stock markets fell on October 4, with Sensex dropping 808.65 points (0.98%) to 81,688.45 and Nifty sliding 235.5 points (0.93%) to 25,014.6.
  • The session was volatile, with Sensex fluctuating by over 900 points during intraday trades, and both indices experiencing a weekly decline (Sensex: 3.09%, Nifty: 4.45%).

Foreign Portfolio Investor (FPI) Outflows:

  • FPIs offloaded ₹9,896.95 crore in domestic shares, while domestic institutional investors bought ₹8,905.08 crore.
  • Overseas investors sold over ₹37,000 crore in the last four sessions, driven by escalating conflict in the Middle East and rising crude oil prices.

Foreign Portfolio Investment (FPI)

  • About:
  • Refers to investments by foreign individuals, corporations, and institutions in India’s financial assets (stocks, bonds, mutual funds).
  • Aims: for short-term gains and portfolio diversification, unlike Foreign Direct Investment (FDI), which involves long-term ownership.
  • Benefits:
  • Capital Inflow: Increases liquidity and capital availability in Indian markets.
  • Boost to Stock Market: Positive impact on valuations and investor confidence.
  • Technology Transfer: Investments often lead to advancements in technology-oriented sectors.
  • Global Integration: Aligns Indian markets with global trends and attracts foreign investors.
  • Risks:
  • Market Volatility: Flows can be volatile, influenced by global economic and geopolitical factors.
  • Capital Flight: Sudden inflows/outflows can destabilise markets and currencies.
  • Transparency Issues: Difficulties in identifying beneficial owners raise concerns about fund misuse and tax evasion.

Sector Performance and Future Outlook: 

  • The sell-off impacted sectors like realty, auto, and FMCG, while IT stocks gained due to anticipated U.S. rate cuts.
  • Top losers included Mahindra & Mahindra (-3.54%), Bajaj Finance (-2.86%), and BPCL (-2.31%).
  • Experts predict continued market pessimism due to high crude prices, inflation concerns, and shifting fund flows to cheaper markets like China.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times