The week saw the market mood turn significantly. What looked like a unrelenting bull market suddenly showed significant cracks. The Chinese stimulus was a catalyst and forced global investors to shift money back into China. As the Chinese market kept going up one way, the short sellers got trapped. And, those who were inadequately invested were forced to allocate to China in panic. This in turn triggered force selling in other emerging markets like India from where they shifted monies into China.
The Israel-Iran conflict triggered a spike in oil prices which further added to the confusion. Now, a fear psychosis on the possibility of a war is clearly gripping global investors. On the other hand, there is the rising pressure on Indian stock prices due to lack of follow up secondary buying, sharp spike expected in IPO issuances during October, frothy valuations in smaller companies and slowing domestic fund inflows. The significant selling changed the market mood leaving domestic investors wondering if this market dip will also get decisively bought like in the recent past. The fear has not so much spread into the retail investor community. Institutional investors are the ones who are anxious as they fear a sharp narrowing in market breadth combined with falling valuations hurting investment performance.
If this plays out further in the coming weeks, then the retail sentiment could get significantly impacted. For now, India’s retail investors seem overconfident that this correction will be short lived and are actively buying the dips in their active stock portfolios. The coming weeks should decide and set the market direction for 2025.