Indian Funds Set Record in Buying Market Dip

Local funds in India have set a new record by injecting a substantial amount of capital into the stock market during a recent downturn. This surge in investment activity comes as domestic and foreign investors take advantage of lower stock prices, particularly in the small- and mid-cap segments.

On a single day, local funds poured a record $1.1 billion into the market, marking a significant show of confidence despite the broader market’s volatility. This influx of capital occurred as small- and mid-cap indexes experienced their worst selloff in over two years. The aggressive buying by local funds highlights their belief in the long-term potential of these stocks, even amid short-term market corrections¹.

The recent market dip has been seen as an opportunity by many investors to acquire high-quality stocks at more attractive prices. Analysts suggest that the current economic expansion in India resembles the boom period of the mid-2000s, characterized by robust corporate profit growth and strong market performance. This historical perspective has encouraged investors to remain optimistic about the market’s future prospects¹.

Despite the recent selloff, valuations in the small-cap segment remain elevated, trading at nearly 21 times their one-year forward earnings. This is higher than the five-year average of 18 times, indicating that while prices have dropped, they are still relatively high. Some strategists, including those at Goldman Sachs, recommend a shift towards larger, more stable companies to mitigate risks associated with high valuations in the small-cap space¹.

The recent buying spree by local funds underscores the resilience and confidence of domestic investors in India’s economic growth story. As the market continues to navigate through periods of volatility, the strategic actions of these investors will play a crucial role in shaping the market’s trajectory.

For more details, you can read the original article on Bloomberg’s website here.