Market crash deepens! Nifty50 down 6.5% in October: What should investors do now?

The Indian stock market faced a significant selloff on Friday, October 25, as both benchmark indices, Sensex and Nifty, dropped nearly 1 per cent. The market's downturn was driven by heavy foreign investor outflows, stretched valuations, disappointing September quarter earnings, and global uncertainties, including the upcoming U.S. elections and escalating tensions in the Middle East.

The Sensex ended 663 points, or 0.83 per cent lower, at 79,402, dropping below the 80,000 mark for the first time since mid-August. The Nifty fell 218.60 points, or 0.9 per cent, to settle at 24,180.80. Meanwhile, midcap and small-cap indices underperformed, each dropping around 2 per cent, which highlighted the broader market's vulnerability. 

The market's fall wiped out nearly ₹9 lakh crore in market capitalisation in a single day, with the total market value of BSE-listed firms plunging to about ₹435 lakh crore from ₹444 lakh crore in the previous session.

This marks the fifth consecutive session of losses for the Nifty, which has shed over 2.5 per cent this week alone and now sits 8 per cent below its all-time peak of 26,277.35 scaled on September 27. While the October decline reached 6.5 per cent, the Nifty remains up by 11 per cent year-to-date in 2024 and 26.5 per cent over the past year.

Key Market Insights and Expert Recommendations

As the Nifty approaches its 200-DMA support level and volatility continues, market experts advise strategic moves to navigate this challenging phase. From selective buying in large-cap financials to cautious accumulation of high-conviction stocks, here’s what analysts recommend for investors in today’s volatile market.

Santosh Meena, Head of Research at Swastika Investmart

Santosh Meena noted that the Indian market's sharp correction stems from heavy foreign institutional selling, driven by valuation concerns and the increased appeal of the Chinese market. Weak earnings reports, especially from the consumption sector, pointed to a slowdown in urban demand, which has begun impacting financial stocks as well. Meena also highlighted selling from high-net-worth individuals (HNIs) and retail investors who had not seen a correction of this depth in recent times.

Meena suggested that the Nifty might test its 200-day moving average (DMA) around the 23,400 level before rebounding post-October expiry. He projected continued pressure on midcap and smallcap stocks but recommended using the dip to invest in quality largecap stocks in the financial sector, where valuations are becoming attractive.

Krishna Appala, Senior Research Analyst at Capitalmind Research

Krishna Appala described the correction as ongoing, with the Nifty down 7.8 per cent from its recent peak and volatility high as the India VIX rose to 14.7. He attributed the broader slowdown to sluggish demand and high input costs in consumer sectors such as auto and FMCG, which have impacted margins. While rural demand could potentially see a boost from a strong monsoon, urban markets continue to struggle, pressuring sales and profits.

Despite the challenges, private banks have maintained stability, showing resilient net interest margins. Appala warned investors to be cautious about high P/E stocks due to earnings downgrades, noting that expensive valuations could lead to further corrections. With foreign institutional investors (FIIs) offloading ₹97,000 crore in October alone, Appala sees this valuation cooldown as an opportunity for gradual accumulation of high-conviction stocks as the market stabilises.

Diwakar Rana, Fund Manager at Prudent Equity

Diwakar Rana highlighted that recent market enthusiasm has dwindled, weighed down by FII selling and disappointing quarterly results. Poor earnings in the consumer sector, impacted by urban and rural slowdowns, have spurred a significant selloff. The banking sector also faced rising non-performing assets (NPAs), increased slippages, and lower profits as firms reported higher provisions.

However, for Rana, this challenging period presents an opportunity for bottom-up, value-oriented investors. He noted that several growth-oriented companies are now trading at attractive valuations, making this an opportune time for investors to selectively buy stocks with long-term potential.

Technical Analysis

Aditya Agarwal, Head of Derivatives & Technical Analysis at Sanctum Wealth

Aditya Agarwal observed that the market continued to face selling pressure, breaking crucial support levels. Nifty broke below 24,100 in intraday trading, hitting a low of 24,073 before short-covering in the last hour pushed it up to close at 24,180. Agarwal noted that Nifty’s 24,000 level will serve as strong support due to significant put writing. On the upside, resistance at 24,400 and 24,500 could hinder any near-term rally. He suggested that with most technical indicators in oversold territory, a pullback could be on the horizon, potentially lifting the index toward 24,350 or 24,440 levels.

Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services

Upadhyay observed that Indian benchmark indices experienced a steep fall on Friday, with the Nifty50 dropping over 300 points and the Sensex slipping around 900 points. The downturn was largely driven by weaker-than-expected quarterly earnings, sustained foreign investor outflows, and a significant breach of the 100-day EMA in both indices. This technical break, which occurred days prior, heightened the selloff as short-term traders exited positions. Key oscillators also indicated bearish divergence, hinting at growing technical challenges, with the potential for further price corrections in the near term.

In summary, while the current environment suggests caution, analysts view this downturn as an opportunity for selective investments. With benchmarks like the Nifty testing critical support levels, the potential for a rebound remains. The prevailing sentiment among experts is that while near-term volatility may persist, long-term investors can leverage this correction to build positions in high-conviction stocks.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.