Stock market crash: Bears tightened their grip on D-Street as domestic equity benchmarks Nifty 50 and Sensex logged their longest weekly losing run in 14 months on Friday, October 25, intensifying a broad-based selloff. Foreign investors continued to offload, and lacklustre corporate earnings further bogged down the sentiment, compelling indices to enter the bear market just a few days ahead of Diwali 2024 and the onset of Samvat 2081.
The NSE Nifty 50 fell 2.7 per cent this week, and the 30-share BSE Sensex dropped 2.2 per cent, logging losses for the fourth straight week and the fifth straight session dragged by macro trends and weak global cues. The Nifty 50 also swung to the oversold territory, with the relative strength index (RSI) slipping below 30 for the first time in a year ahead of the festive season.
The Nifty 50 index was in the overbought territory on September 27 when it hit record highs. Since then, the index has dropped eight per cent, weighed down by foreign outflows for the last 19 sessions, as investors direct funds to China on Beijing's stimulus measures and relatively cheaper valuations. The India VIX, the volatility index, jumped over seven per cent to reach 15 during the day but later settled at 14.6 (+4.7 per cent).
Both benchmarks are set for their worst month since March 2020, when the government announced a nationwide lockdown due to the COVID-19 pandemic. All the sectoral indexes logged weekly losses. The broader, more domestically focused small- and mid-caps fell 6.5 per cent and 5.8 per cent this week.
Today, investors' wealth eroded by ₹6.80 lakh crore as bears dominated bulls after unabated foreign fund outflows. Tracking the weak trend in equities, the market capitalisation of BSE-listed firms tumbled ₹6,80,383.26 crore to ₹4,36,98,921.66 crore (USD 5.20 trillion). Foreign institutional investors (FIIs) sold a net of ₹3,037 crore in Indian equities today.
“FIIs continued to sell their positions, reaching Rs.1 lakh crore selling spree in October. Overall, the market has corrected by eight per cent from all-time highs of 26,277 levels, led by weak global cues, muted Q2 results, and heavy selling by FIIs. We expect the weakness to continue in the near term amid cautiousness among investors ahead of the US presidential elections,” said Siddhartha Khemka, Head - Research, Wealth Management, Motilal Oswal Financial Services Ltd.
Samvat 2080 saw Indian markets soaring to new highs, with the Nifty 50 index surpassing the psychological 26,000 milestone to achieve a new high of 26,277 in September 2024. Despite the recent correction of seven per cent from the top, the Nifty 50 has returned 26 per cent in Samvat 2080 so far. The Sensex topped 85,900 last month, while the BSE midcap and smallcap indexes outperformed and gained 45 per cent and 50 per cent, respectively.
Corporate earnings growth momentum, strong GST collection, capex cycle revival, favourable monsoon, and robust domestic demand were among the driving factors, while positive global clues, along with strong liquidity through mutual funds, remained supportive factors for the market.
After four consecutive years of healthy double-digit growth, corporate earnings moderate due to commodity pressures and fading tailwinds from BFSI asset quality improvements. Despite the challenges, domestic brokerages say the ongoing festive season, better-than-expected monsoon, and consequent pick-up in rural consumption provide a near-term catalyst.
Major global central banks, including the US Federal Reserve, have pivoted towards a monetary easing cycle. “This shift implies a favourable environment for risk assets. Consequently, markets appear to be experiencing a genuine tug-of-war between the headwinds and tailwinds,” said domestic brokerage Motilal Oswal Financial Services.
Macro factors suggest a strong outlook as India is one of the fastest-growing economies, with a gross domestic product (GDP) growth of 8.2 per cent in FY24, followed by 6.4 per cent in Q1FY25. Nifty 50 is trading at a 12-month forward P/E of 21.5x, just five per cent above its last 10-year average of 20.4x. The valuation is indicative of optimism regarding long-term growth.
“Nifty earnings growth will likely remain steady at ~a 12 per cent CAGR over FY24-26. For Samvat 2081, we expect sectors linked to domestic structural and cyclical themes to do well. We are positive in sectors such as financials, consumption, industrials, technology, and healthcare,” said Motilal Oswal.
The domestic benchmark equity index NSE Nifty gained around 25 per cent since Diwali last year. However, the recent surge in crude oil prices, global economic slowdown worry and geopolitical concerns are potential near-term uncertain risks for the overall GDP growth of the economy. According to market experts, the five key triggers for Samvat 2081 are as follows:
1.US Presidential Elections: The US Presidential election results in November 2024 will influence global market dynamics and FII flows. The Indian stock market will likely witness a change in sentiment due to US economic and trade policies after the election results.
2.State assembly elections: The Indian state assembly elections in Maharashtra will be conducted in November-December 2024, followed by Delhi assembly elections in February 2025. The market moves according to victory or losses registered by the party at the centre, over concerns of continuity of government policies.
3.Start of domestic rate cut cycle: The US Federal Reserve has begun its rate-cut cycle prompting central banks across the globe to act on the same lines. The Reserve Bank of India (RBI) changed its stance to neutral in its last monetary policy meeting and will likely consider a rate cut after inflation comes consistently near its target range of four per cent.
4.Union Budget 2025: Union Budget 2025 will be presented in February which will impact market trends in the near-term, inducing sector and stock-specific action based upon industry and policy announcements made by the Finance Minister.
5.FII flows: Foreign capital was one of the most crucial market triggers in Samvat 2080, responsible for record-highs and mid-month corrections. The trend impacts the sentiment of domestic investors who try to counterbalance the outflows, yet the frontline indices register the loss of cash volume.
D-Street experts say that geopolitical developments will likely keep certain commodities' equity markets and prices volatile. In the coming weeks, key events include the US elections and the US Federal Reserve meeting. Stock-specific action will continue based on Q2FY25 financial performance and management commentary.
“Stock markets continue to remain in an extended consolidation phase driven largely by FII selling, earnings disappointment leading to downgrades and weak sentiments in general,” said Arindham Ghosh, Co-Founder, Alphaniti Investment Advisor
“The US election is a key event which is also closely watched as its outcome may directly affect key emerging markets. It’s a wait-and-watch period until these uncertainties are out of the way. At the broader market, the carnage has been all-pervasive and may intensify further, though pockets of value may start emerging at some point,” added Ghosh.
Technical View: The benchmark indices continued profit booking at higher levels in the last week. The Nifty ended 2.70 per cent down, while the Sensex was down by 1,870 points. Among sectors, all the major sectoral indices were traded in red, but the media and metal indices corrected sharply and shed over seven per cent.
“During the week, the market consistently faced selling pressure at higher levels, and after a long time, it slipped below the 100-day SMA ( Simple Moving Average), which is largely negative. In addition, it also formed a long bearish candle on weekly charts, which supports further weakness from the current levels,” said Amol Athawale, VP-Technical Research at Kotak Securities.
“We believe that the current market texture is weak but oversold; hence, the strong possibility of a pullback rally from the current levels is not ruled out. For the traders now, 24,100/79,000 would be a key support zone. Above the same, we could expect one technical bounce back till 24,500/80,300 and 100-day SMA or 24,600/80,600,” said Athawale.
“Conversely, a fresh selloff is possible only after the dismissal of 24,100/79,000. Below the same, the market could slip to 24,000-23,800/78,700-78,300. For Bank Nifty, the 50,500 would act as a key support zone. Above this, the pullback formation will likely continue till 51,200-51,500. On the flip side, below 50,500, it could correct till 50,250-50,000,” he added.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
