Elections 2024 | Low voter turnout shakes up stock market indices
Dalal Street not ruling out 10-15% correction if outcome does not favour incumbent BJP government; $3.5-b withdrawal by FIIs is also making investors jittery
This week's downward spiral of indices, with investors losing approximately ₹8 lakh-crore in market capitalisation (m-cap), reflects the impact of lower voter participation in crucial states. It has introduced an element of unpredictability reverberating through the financial markets.
Additionally, foreign institutional investors (FIIs) withdrawal of $3.5 billion from India's stock markets this month, the biggest since June 2023, represents a significant capital outflow.
Dalal Street is not ruling out a 10-15 per cent correction if the outcome does not favour the incumbent NDA government. Historically, election-driven market underperformance tends to reverse in the medium to long term as markets adapt to new policies rolled out by a new coalition if it comes to power.
Analysts point to several reasons for the slide in Sensex, including global tech market trends and company-specific issues.
Decline in heavyweight stocks
Some of the market's biggest players have seen corrections, further weighing on the Sensex. Heavyweight stocks like Reliance Industries, Infosys, and Tata Consultancy Services (TCS) have experienced notable declines. These companies have substantial market capitalisations, and their performance significantly impacts the overall index.
Reliance Industries, for example, has faced headwinds due to fluctuating crude oil prices and regulatory challenges. Similarly, TCS and Infosys have been navigating a complex global tech landscape, which has affected their stock performance.
Global cues
Various analysts have pointed out that the geopolitical landscape, especially tensions in the Middle East, continues to unsettle markets. The ongoing Iran-Israel conflict has raised concerns about potential disruptions in oil supply, which can have broad economic implications.
Geopolitical risks often lead to flight-to-safety behaviours, where investors move their assets to perceived safer havens, thereby affecting equity markets.
Crude oil prices have surged to six-month highs, significantly impacting market dynamics. The increases observed in March and April have been particularly influential.
Higher oil prices can increase costs for businesses and consumers, potentially slowing economic growth and affecting corporate profitability. For India, a major oil importer, rising crude prices can strain the economy, leading to inflationary pressures and affecting investor sentiment.
Market instability
Another reason for the Sensex decline is global market instability. Delayed expectations regarding US interest rate cuts have stirred anxiety among investors. The Federal Reserve's monetary policy decisions are closely watched worldwide, and any delay in anticipated rate cuts can ripple through global markets, affecting investor sentiment and market behaviour.
Analysts also say that FIIs' withdrawal of $3.5 billion from India's stock markets this month indicates a lack of confidence in the Indian market. This can negatively affect overall market sentiment, increasing volatility and further driving down stock prices, according to them.
FIIs often provide significant liquidity to the markets. Their withdrawal can reduce market liquidity, making it harder for other investors to buy or sell stocks without causing substantial price changes.
