ET Now: Give us a sense of the moves we’ve seen in the market this week. What is your take on the volatility we’ve experienced, with the market being in the red most of the week? On the last trading day, we saw a mild recovery. Do you think this is the start of a recovery, or is it just a one-off good day?
Ajay Bagga: Well, it could very well be the start. We have lost about $7 billion in FII outflows in recent weeks. The primary issues have been negative flows, a slowing economy, an RBI that remains hawkish, and food inflation preventing the RBI from cutting rates in the upcoming MPC meetings. On top of that, corporate earnings have been disappointing. Any negative news is triggering strong selling in those sectors. For example, gas companies, fintechs, and MFIs being scrutinized by the RBI have seen significant downward moves. With markets at elevated levels, there is little tolerance for missed earnings and bad news. But this skepticism lends strength to the market—there is no euphoria. In fact, there is a healthy skepticism, as people are concerned about FIIs pulling out, promoters selling more than Rs 2 lakh crore, and IPOs and OFS taking out another Rs 2 lakh crore between January 1 and October 15. Despite this, the markets have held up, which is a positive. This lack of euphoria and the healthy skepticism are adding resilience to the market. Going into Diwali and beyond, as the US presidential election approaches, we typically see a global market rally. Historically, US markets are weaker before the election and then rally strongly, which could also support Indian markets. So, this might indeed be the start of a recovery.
ET Now: Over the past few weeks, including this one, Nifty has underperformed its global peers for three consecutive weeks, closing lower. A major reason is that FII flows are moving out of India, while the China story remains central. Record FII selling in index futures has surpassed March levels. Is this trend over, or does the China story have more impact left? What is your view?
Ajay Bagga: As we saw on Friday with China, when the People’s Bank of China announced more stimulus and released about $110 billion for stock market investments, Chinese markets rose over 3%. The China story will continue. Will it come at India’s expense? I don’t think it will for much longer. The reset that was necessary is probably 50-60% complete, with maybe another $5 billion in outflows. But the positive is that we have absorbed these outflows. If $7 billion has gone out, $7.6 billion has come in through DIIs. With the new month, around $2.5 billion will flow in from mutual fund SIPs, along with EPFO, insurance, and other funds. The drivers for FII outflows…
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