Vantage | Should you be worried about India's stock market crash?

On Wednesday, Indian stocks took a dive. Everything was in red. Both Nifty and Sensex saw a fall. The former was down by over 300 points, while the latter dropped by almost 1000 points.

In one word, it was a bloodbath, and this is quite a contrast from the recent spikes. A few weeks ago, Indian stocks were being celebrated. Indian markets have become the fourth biggest in the world. They had overtaken Hong Kong. There was a clear upswing. But has that momentum come to a grinding halt? No.

If you're investing for the long term, then there is no need for you to worry. India's numbers are healthy, and the government is looking at eight percent growth for the current financial year 2023–24. The International Monetary Fund says India will "easily" remain the world's fastest-growing economy. So, the growth trajectory is positive. But, in the short term, the markets may see some turbulence.

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Cause of slide

Some big-ticket foreign investors have reduced their holdings in their Indian businesses. This includes the likes of Whirlpool Corporation, which is an electronics giant. It has sold a part of its India business. The same is true of Singapore Telecommunications Limited, a major telecom player better known as "Singtel". Since the year 2000, it has been a strategic investor in Airtel, one of the biggest telecom companies in India. Singtel has sold some of its shares. The shares constitute 0.8 percent of its Airtel stock.

In total, there have been at least seven such instances in recent weeks where a major player has disinvested or has been planning to do so for a part of its India operations.

They are selling these shares as a strategic move. Market experts call it a strategic sale. When the value of your business is at its peak and the share price zooms up, you offload some shares to make money.

Businesses usually take this route when they are looking to raise quick money. Or when they want to cash in on the momentum.

Whirlpool plans to use the proceeds of about $468 million to reduce debt. Singtel plans to use funds to invest in areas such as data centres.

These businesses could not have timed it better. Since November last year, Indian markets have been on fire, and stock prices have shot through the roof. They are among the most expensive in the world. So, for the last eight years, Indian markets have gained continuously. So you could say this fall was coming.

Massive drop 

India's small and mid-cap stocks saw a massive drop on Wednesday; it was their worst day of trading in more than two years. These are small and medium-sized companies by market value. They're listed on the stock exchanges.

India's market regulator SEBI has been worried, as it thinks that there are signs of a bubble in these stocks. The SEBI chief gave a statement this week; she said, “There are pockets of froth in the market; some call it a bubble. It may not be appropriate to allow that bubble to keep building because, when it bursts, it adversely impacts investors."

This statement came with some advice that was aimed at mutual funds. The SEBI chief asked them to manage their risk with small and midcap investments better.

India's market regulator has asked mutual funds to conduct stress tests and disclose the results by Friday. They must do it once every 15 days and disclose the results.

During stress testing, MFs evaluate if they will be able to meet large redemption pressures, going by the recent liquidity in the stocks that they hold.

Now reports say mutual funds followed the SEBI orders, and that may have churned in their portfolios.

So there is no major cause for concern; market fluctuations do not impact India's growth story. There is a large influx of investors in the Indian market, and that's a good reason for Indian regulators to step up their vigilance by introducing measures to shield the small investors from sudden shocks.

The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.