Underperformance of Indian Markets: Sensex ended Tuesday at 73,512, down 384 points, or 0.52 percent. It hit an intraday low of 73,259 on Tuesday.
It hit a low of 22,232 during the day. The Nifty50 ended near 22,300 at 22,303, down 140 points or 0.62 percent.
Among the 30-stock index’s laggards were Power Grid, IndusInd Bank, Tata Motors, JSW Steel, HCL Tech, NTPC, Tata Steel, ICICI Bank, M&M, Axis Bank, Reliance Industries, HDFC Bank, and Ultratech Cement.
On the other hand, HUL, Tech M, Nestle India, TCS, ITC, Kotak Bank, and Infosys gained up to 5.6%.
In addition, the BSE MidCap, and SmallCap indices fell up to 3 percent intraday, and ended 1.9% and 1.65% lower, respectively.
There was a 2 percent advance in the Nifty FMCG index, and a 1 percent gain in the Nifty IT index.
In addition to the Nifty Realty index (down around 3.5%), all other sectoral indices ended in the negative zone.
What are the reasons for the underperformance of Indian markets?
Despite positive global cues, the Indian market is underperforming in the near term.
Despite the Dow trending up for four consecutive sessions, the Nifty has become highly volatile and apprehensive. Why is this?
So far, FIIs have sold Rs 5525 crores in the three trading sessions in May. However, this is normal since FIIs sell when US bond yields are attractive.
A more significant factor might be the apprehensions emerging from the unexpectedly low turnout in the election, so far. One opinion holds that the ruling dispensation’s victory is in doubt for now.
Perhaps the apprehension in the market and the bulls giving up their aggressive stance can be attributed to this uncertainty.
VIX spiked by 46% in the last month and is hovering around 16.6, which indicates volatility and uncertainty will stick around.
Considering this volatility index, what should investors do?
Since its April 23rd low of 10, the India VIX, also known as the “fear index,” has surged more than 70%.
VIX typically rises before major events, such as elections. In 2019, it spiked 150% (from 12 to 30), and in 2014, it spiked 212% (from 12.5 to 39).
As a result of this historical context, the VIX may rise further, possibly reaching 25 before the election.
Meena noted that two factors are driving the VIX’s rise. First, portfolio investors are buying protective put options to hedge their holdings. Second, traders are speculating on significant price movements post-election by purchasing both calls and put options.
A falling yen and renewed confidence in US interest rate cuts led Asian shares to make 15-month highs on Tuesday.
On Monday, US stock indexes closed higher, their third straight session of gains, as investors gained confidence that the Federal Reserve would reduce interest rates this year.
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