The Indian stock market experienced a significant downturn on Monday, with the benchmark indices Nifty and Sensex resuming their decline after a week of relative stability. Both indices fell nearly 2%, leading to substantial losses for investors and raising concerns about future market performance.
Market Overview: Sharp Losses Registered
As of 12:57 pm, the S&P BSE Sensex had plummeted by 1,303.19 points, trading at 78,420.93, while the NSE Nifty50 saw a decline of 437.15 points, dropping to 23,867.20. The overall market sentiment was bearish, with broader indices such as smallcap and midcap stocks also experiencing significant losses. This widespread panic selling was evident on Dalal Street, as volatility surged sharply during the session.
Key Factors Behind the Downturn
Analysts have identified three primary factors contributing to this sharp market decline. Vishnu Kant Upadhyay, AVP – Research and Advisory at Master Capital Services Ltd, noted that the Nifty and Sensex have dropped nearly 9.5% from their all-time highs. The ongoing sell-offs, particularly from foreign institutional investors (FIIs), have pushed the indices to a five-month low. Concerns have been compounded by disappointing quarterly earnings and increasing geopolitical uncertainties.
FII Selling Pressures Market Sentiment
One of the most significant factors impacting the Indian stock market has been heavy selling by foreign institutional investors. With many FIIs re-evaluating their investments in light of an expected stimulus package from China, there has been a marked shift in fund allocations away from India. This movement of capital has raised concerns about potential outflows, which generally exert downward pressure on stock prices.
Santosh Meena, Head of Research at Swastika Investmart Ltd, explained, “Nifty and Sensex have resumed their downward trend largely due to heavy selling by FIIs.” The anticipation of a stimulus package from China is drawing funds away from Indian markets, while FIIs are also taking profits in preparation for the upcoming U.S. elections.
Profit Booking Ahead of U.S. Elections
In the lead-up to the U.S. presidential elections scheduled for November 5, many investors are opting to book profits, which is further adding to the downward pressure on domestic markets. This profit-booking behavior has been driven by concerns over potential market volatility surrounding the election outcomes.
Upadhyay highlighted several key factors behind the current sell-off, including the imminent U.S. elections, the Federal Reserve’s monetary policy announcement on November 7, and recent disappointing U.S. nonfarm payroll data. “Concerns regarding a potential delay in U.S. election results have further exacerbated investor anxiety,” he noted.
Cautious Stance of Domestic Investors
Amid these global uncertainties, domestic institutional investors (DIIs) appear to be adopting a cautious stance. With FIIs driving the selling momentum, DIIs have reportedly held back, contributing to a lack of buying support in the market. Santosh Meena observed, “DIIs seem to be on the sidelines amid these major global events,” which has further intensified the downward trend.
As both Nifty and Sensex approach their 200-day moving averages, around 23,500 and 77,000 respectively, analysts suggest that a temporary bottom could form in this zone. Meena pointed out that the Bank Nifty is displaying relative resilience due to attractive valuations, encouraging investors to focus on stocks with reasonable valuations and strong earnings momentum.
Technical Analysis: A Critical Week Ahead
From a technical perspective, the market remains significantly below its 100-day exponential moving average (EMA), which contributes to a bearish outlook. Upadhyay indicated that this week will be critical for market performance. A hold above the 23,500 level could indicate potential bargain buying, while a sustained move above 24,500 might trigger short covering, potentially signaling an end to the downtrend. Conversely, a decisive break below the 23,500-23,400 range could lead prices further down toward 22,800.
Weak Q2 Earnings Contribute to Investor Anxiety
Another crucial factor affecting investor sentiment has been the dismal performance of major companies in their second-quarter earnings reports. For instance, Bharat Petroleum Corporation Limited (BPCL) faced a staggering 34.3% downgrade in its FY25 earnings per share (EPS) projections following its Q2 results. Other companies like IndusInd Bank, UltraTech Cement, and Coal India also reported significant downgrades.
Analysts at Motilal Oswal Financial Services (MOFSL) observed that while 34 Nifty stocks reported a modest 5% growth in sales for Q2, EBITDA growth was limited to just 1%, and net profit growth stagnated. Concerns over domestic earnings have intensified following the weaker Q2 performance, with many companies falling short of profit after tax (PAT) and EBITDA estimates. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “The Indian market is grappling with challenges due to slowing earnings growth. Based on Q2 results, Nifty’s FY25 EPS growth may fall below 10%, making current valuations difficult to justify.”
Conclusion: Navigating Market Uncertainties
The Indian stock market faces significant challenges as it grapples with heavy selling from foreign institutional investors, profit-booking activities ahead of major global events, and disappointing corporate earnings. With key technical levels in play, investors are urged to remain vigilant and consider their positions carefully amidst ongoing volatility. As the week unfolds, all eyes will be on how the market responds to these pressures, and whether it can find any footing amid the turmoil.
