MUMBAI: The stock market opened on a subdued note on Tuesday, reflecting weak global sentiment and carrying forward the impact of Monday’s drop.
The benchmark indices saw a marginal rise at the opening, with the Sensex gaining 183.87 points to start at 81,335.14, while the Nifty inched up by 31.55 points to open at 24,812.65.
At the start of the trading session, Nifty showed a mixed trend, with 22 companies advancing and 27 declining.Leading the gains were Shriram Finance, Tech Mahindra, ICICI Bank, HCL Technologies, and Nestle India.
On the downside, Tata Steel, Bharat Electronics Limited (BEL), Mahindra & Mahindra (M&M), Tata Motors, and Bharat Petroleum Corporation Limited (BPCL) emerged as the top losers, indicating a cautious approach by investors.
Ajay Bagga, a banking and market expert, weighed in on the current market environment, drawing insights from a recent study of global asset management trends.
He noted that while the S&P 500 saw an annualized growth rate of 13 per cent over the last decade, the profitability of major global asset managers such as BlackRock, State Street, JPMorgan, and Goldman Sachs 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 pointed out that the Indian market remains a stronghold for active management, despite an increasing trend towards passive fund launches. He highlighted that even with high fees for passive funds compared to global competitors, Indian investors have continued to buy equity products through mutual funds and insurance companies consistently.
Bagga also shared trends in foreign and domestic investment flows. In 2022, while Foreign Institutional Investors (FIIs) withdrew Rs 2.6 lakh crore from the Indian markets, 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, while DII purchases surged 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 for the year compared to 2023. Bagga attributed this slowdown to a mix of factors, including rising taxes on domestic investors, which he suggested might be reaching a tipping point.
Bagga also drew attention to the sluggish private consumption growth in India. He cited that rural consumption rose by a modest 5.4 per cent year-to-date (YTD), while urban consumption grew 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.
The expert further 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.
The stock market’s flat opening on Tuesday reflects ongoing concerns over weak global sentiment, sluggish consumption growth, and persistent FII outflows.
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.”