Stock market crash: Nifty 50 nosedives 10% from record high. Can it reclaim 26K by year-end?

Stock market crash: The Indian stock market benchmark Nifty 50 broke its seven-session losing streak on Tuesday, 19 November, closing 0.28% higher at 23,518.50. However, the index gave up most of the gains it made earlier in the session. Despite ending in the green, it remains approximately 10.5% below its record high of 26,277.35, reached on 27 September.

The market has been under significant pressure since October due to several factors, including weak September-quarter earnings, high valuations, uncertainty over the pace and extent of US Fed rate cuts, massive foreign capital outflows, and a stronger US dollar and rising bond yields.

The Nifty 50 declined by 6% in October, ending a four-month winning streak. So far in November, the index has registered an additional 3% loss.

More pain in the offing?

While the Nifty 50 posted gains on Tuesday, concluding that the worst is over may be premature. The domestic market remains weighed down by weak earnings, elevated valuations, and a lack of fresh catalysts.

However, the market could see a relief rally because India's macro picture remains intact. Moreover, the rate cut cycle has already started in the US, and the Indian central bank is expected to begin the exercise soon.

Foreign portfolio investors (FPIs) have been offloading Indian equities since October, but this trend is expected to slow down.

FPIs tend to sell stocks in emerging markets before the year-end holiday season begins. However, this time, this trend need not be repeated since they have already sold off heavily. National Securities Depository Ltd (NSDL) data shows FPIs sold Indian stocks worth ₹94,017 crore in October. In the current month, till the 18th, they have offloaded Indian equities worth ₹23,913 crore.

V.K. Vijayakumar, chief investment strategist, Geojit Financial Services, observed that weak Q2 earnings intensified FPI selling. Initially, they sold due to the "sell India, buy China" trend, but that phase has passed. It was more of a tactical move rather than a long-term strategic shift. The historical FPI trend may not repeat this time because they have been selling since October, according to Vijayakumar.

He said a positive development for the Indian market is that the "sell India, buy US" trade has also waned. “In the US, hopes of corporate tax cuts boosting earnings had fueled optimism, but with the S&P 500 already trading at over 25 times trailing twelve-month earnings, rich valuations leave little room for the ‘Trump trade’ to continue. This may explain the tapering of FPI selling, which likely contributed to today's rebound; however, whether this recovery is sustainable remains to be seen.”

Can Nifty 50 reclaim 26,000 by year-end?

Experts believe it could be difficult for the Nifty 50 to reclaim the 26,000 mark by the end of the current year. They believe the market may see a sustained recovery only after the Q3 results of India Inc. come on a stronger side.

"It is difficult to say that the Nifty 50 will be able to reclaim the 26,000 mark by the end of the year. Indicators suggest a recovery in earnings in H2FY25. In that case, the market may see a sustained recovery, and FPIs may stage a comeback," said Vijayakumar.

Shrikant Chouhan, the head of equity research at Kotak Securities, pointed out that by breaking the level of 23,800, the Nifty 50 has triggered further weakness in the broader market. However, in the last two days, it has been stabilising around the 200-day simple moving average (SMA), which is at 23,500. This could pull the sentiment, and in that case, the market may retest the levels of 23,800 or 24,000, where it has a resistance of the 20-day SMA.

"As it is an extended correction period, we could see further weakness or a sideways pattern before displaying a sustainable recovery in the market. Based on the technical pattern, the market may remain in a range of 23,000 and 26,000 till the end of the year," said Chouhan.

Jatin Gedia, a technical research analyst at Sharekhan by BNP Paribas, said the Nifty 50 has reached the 200-day moving average (23,500), which generally holds good support in Bull markets.

Gedia believes that the index has entered a consolidation phase and is likely to consolidate within the range of 23,000-26,000 from a three-month perspective.

"Our primary outlook is that the index will likely form a triangle pattern, which is a time-consuming correction phase," said Gedia.

Vikas Jain, the head of research at Reliance Securities, pointed out that the second quarter results season is over, and there are hopes of a recovery from the current levels unless there is a negative surprise from global markets.

Jain said the reversal of DXY from the resistance of 107 to the lower range of 102-103 will resume FPI buying.

"We believe there could be a strong up-move in large caps while small caps will take some time, witnessing some consolidation and time correction at current levels. One will have to be very selective and follow a bottoms-up approach to invest in small-cap stocks. Our 2025 calendar year-end target is 28,900 for Nifty 50," Jain said.

According to Narinder Wadhwa, managing director of SKI Capital, the level of 23,300 coincides with significant historical support zones and moving averages, suggesting a likelihood of buying interest.

Wadhwa's year-end target for the Nifty 50 is 25,200-25,500. A bounce to this range implies a 7-9% recovery from current levels. For this to materialize, stabilizing global conditions and renewed buying interest from FPIs/domestic institutional investors would be essential.

Wadhwa said a breach of the 23,300 level could open the door to further declines, possibly toward 22,800 or lower. Persistent FPI selling or worsening global cues could delay any meaningful recovery.

"Watch for confirmation of 23,300 as a support level before initiating fresh positions. Sectoral plays in banking, autos, and capital goods may offer better risk-reward opportunities during the recovery phase. If global cues stabilise, the target of 25,200-25,500 by December is achievable, but a cautious approach with strict stop loss levels is advised," Wadhwa said.

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