NEW DELHI: The Indian stock market opened on a subdued note on Tuesday, mirroring the weak global sentiment and carrying forward the impact of Monday’s decline. The Sensex gained a modest 183.87 points to start at 81,335.14, while the Nifty inched up by 31.55 points to open at 24,812.65. The market showed a mixed trend, with 22 companies advancing and 27 declining on the Nifty.Shriram Finance, Tech Mahindra, ICICI Bank, HCL Technologies, and Nestle India led the gains, while Tata Steel, Bharat Electronics Limited (BEL), Mahindra & Mahindra (M&M), Tata Motors, and Bharat Petroleum Corporation Limited (BPCL) emerged as the top losers.
Ajay Bagga, a banking and market expert, shared insights from a recent study of global asset management trends. Despite the S&P 500’s annualized growth rate of 13 per cent over the last decade, the profitability of major global asset managers has declined. Their profits in 2023 dropped to 8.2 basis points of assets under management, down from 10.1 basis points in 2021. Bagga noted that the Indian market remains a stronghold for active management, with investors continuing to buy equity products through mutual funds and insurance companies, despite high fees for passive funds compared to global competitors.
Bagga also highlighted the trends in foreign and domestic investment flows. In 2022, Foreign Institutional Investors (FIIs) withdrew Rs 2.6 lakh crore from the Indian markets, while Domestic Institutional Investors (DIIs) absorbed almost an equal amount by buying Rs 2.59 lakh crore worth of equities. This trend continued in 2023, with FIIs selling Rs 1.49 lakh crore and DII purchases surging to Rs 5.41 lakh crore. For 2024 (up to October 18), FIIs have sold Rs 1.87 lakh crore, while DIIs have bought Rs 4.2 lakh crore, indicating a potential decrease of 5 per cent in overall DII flows compared to 2023. Bagga attributed this slowdown to factors such as rising taxes on domestic investors.
The expert also drew attention to the sluggish private consumption growth in India, with rural consumption rising by a modest 5.4 per cent year-to-date (YTD) and urban consumption growing even slower at 4.5 per cent YTD. Given that private consumption accounts for about 60 per cent of India’s GDP, these figures indicate potential weakness in the economy, corporate earnings, and the stock market.
Bagga emphasized that elevated stock market valuations, coupled with high growth expectations, could lead to investor disappointment as corporate earnings growth slows. He advised investors to exercise caution when allocating funds, given the backdrop of a slowing macroeconomic environment, weak earnings growth, and high valuations.
Bagga said, “Add on elevated valuations on the base of very high growth expectations, which will lead to disappointment for investors, and you get to a basic reason for FII outflows, slowing macro, slowing corporate earnings growth but very high valuations leaving little room for justifiable price appreciation. Investors will need to be careful in allocating funds in this market given this backdrop.”