Indian stocks got over the election shock at the fastest speed in recent history, as domestic investors used the near-$400 billion selloff last week as an opportunity to buy the dip.
The benchmark NSE Nifty 50 Index sank almost 6% on June 4 after Prime Minister Narendra Modi’s alliance won a surprisingly slim majority, only to recoup the loss in the next three sessions. That’s the fastest recovery from a drop of more than 5% in the last decade.
The rebound reflects the unwavering confidence among retail investors and their belief that local stocks will continue to reward them after rising for eight straight years. Inflows into equity mutual funds hit a record $4.2 billion last month despite the poll-linked volatility that whipsawed markets in May.
The flood of local money means any pullback has a short shelf life, and contrasts with bearish positioning by foreign investors who remain net sellers of more than $5 billion this quarter.
The ample liquidity has also led to a surge in the prices of small, often low-quality and unknown stocks, as non-institutional players remain confident about making high returns “irrespective of prices and valuations,” Kotak Institutional Equities analysts led by Sanjeev Prasad wrote in a note.
“Narratives have taken firm root, while numbers and valuations have withered,” Kotak analysts said.
