23 Nifty 50 stocks plunge up to 37% from one-year highs; IndusInd Bank, Tata Motors among the worst hit

November has so far not offered any relief for Indian markets, as the selloff that began in October has persisted well into the current month. A combination of domestic and global pressures continues to dampen investor sentiment, pushing frontline indices to multi-month lows in recent trading sessions.

Each time the frontline indices attempt a recovery, investors seize the uptick as an opportunity to sell stocks at higher levels, effectively halting any sustained rebound in the markets. 

Sharp declines across major sectoral indices, coupled with heightened volatility have fueled investor caution about the market’s direction. October recorded the steepest monthly drop for the Nifty 50 and Sensex since March 2020. Additionally, foreign portfolio investors (FPIs) have been steadily pulling out of Indian markets since late September, which has put sustained pressure on the Indian rupee, driving it to new record lows.

Another key factor weighing on investor sentiment has been the softer-than-expected September quarter earnings. Disappointing results have led many brokerages to issue earnings downgrades across multiple sectors, further exacerbating the market’s selloff and contributing to a cautious outlook for the near term.

Against this backdrop, the Nifty 50 has corrected by 8.15% from its record peak, with 23 of its constituents now trading 15-37% below their one-year highs. Leading this decline is IndusInd Bank, currently trading 37.4% below its recent high of ₹1,694. The stock saw a sharp correction post September quarter (Q2) results as asset quality deteriorated due to stress in the bank's unsecured loan portfolio.

Automobile stocks have also been significantly impacted, with Tata Motors and Maruti Suzuki declining by 31.75% and 16.67%, respectively, from their 52-week highs. Similarly, two-wheeler manufacturers like Bajaj Auto and Hero MotoCorp are trading at discounts of up to 24%.

FMCG giants Nestlé India and Hindustan Unilever have experienced sharp corrections after reporting their September quarter earnings, with both stocks now down around 18% from their recent 52-week highs.

Market Sentiment Shifts: Caution replaces optimism

The Indian equity landscape, which successfully weathered the global uncertainty following the COVID-19 pandemic, is now witnessing a significant shift in investor sentiment. After an extended period of strong growth, the market seems to be losing its appeal, with investors growing increasingly cautious about future prospects.

Investor concerns are now more focused on domestic factors rather than global developments. These include expectations that inflation remained elevated in October and beyond, a slowdown in high-frequency indicators, weak spending by urban India, the rupee hitting record lows and elevated market valuations.

In its recent report, economists at the State Bank of India (SBI) projected GDP growth to decline to 6.5% in Q2 FY25, down from 6.7% in Q1. This estimate is 50 basis points (bps) lower than the RBI’s projection of 7% for the quarter. For the full fiscal year, SBI forecasts growth at 7%, which is 20 bps lower than the RBI’s forecast.

Additionally, there are rising concerns that the Reserve Bank of India (RBI) may maintain higher interest rates until February, adding further pressure on market sentiment.

On the global front, Donald Trump's victory in the 2024 US presidential election initially offered some relief to domestic markets, with expectations that his expansionary policies could strengthen the US economy and benefit India’s export-oriented industries. Additionally, hopes of Donald Trump returning to power have also fueled expectations that more industries will shift to India due to the 'China Plus One' strategy.

However, concerns about Trump’s tariff policies on imported goods and the potential for an escalating fiscal deficit have led to worries that these factors could pressure the Federal Reserve to delay further rate cuts. This, in turn, may contribute to more outflows from emerging markets, particularly India. There are also reports suggesting that Trump will also impose tariffs on Indian goods. 

Meanwhile, China's recent stimulus measures have attracted overseas investors, hoping that these new initiatives will help Beijing revive its economy, which has been under pressure following the Covid-19 pandemic.

Recent reports indicate that Foreign Portfolio Investors (FPIs) are shifting investments from overheated Indian stocks to Chinese markets, as they do not see any near-term catalysts to justify maintaining valuations at elevated levels in India.

Challenges ahead?

Sunil Damania, Chief Investment Officer, MojoPMS said, “Following the U.S. presidential election, we've observed a divergence between the U.S. and Indian stock markets. While U.S. markets may experience gains, the Indian market currently faces challenges, including high inflation, slowing urban consumption, and significant foreign portfolio investor (FPI) selling. In the past 35 days, FPIs have sold over ₹1 lakh crore, an unprecedented level of outflow that has intensified pressure on Indian equity prices.”

"In our view, the recent U.S. election outcome will likely have minimal immediate effect on Indian market sentiment. With the newly elected president not assuming office until January 2025, the Indian market's near-term direction will be more influenced by domestic factors, such as the Maharashtra assembly election results, corporate earnings commentaries, and retail investor behavior in response to the October and early November downturn," he added.

Historically, the Indian market has shown resilience and an upward trajectory regardless of changes in U.S. leadership. Sunil Damania advises investors to focus on India's strong fundamentals rather than speculating on U.S. policy changes. He believes that the U.S.-India strategic relationship, particularly in counterbalancing China, is likely to remain stable, which will mitigate any substantial negative impact on the Indian economy.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.