The Indian stock market began October on a disastrous note, with Dalal Street witnessing carnage due to across-the-board selling pressure on weak global cues. The domestic indices experienced a sharp downturn, breaking its three-week winning streak. The significant decline has been attributed to a combination of fundamental challenges, which prompted short-term profit-taking.
In the second week of October, investors will closely monitor key market triggers such as the upcoming Monetary Policy Committee (MPC) meeting by the Reserve Bank of India (RBI), the first set of July-September quarter results for fiscal 2024-25 (Q2FY25), Israel-Iran war, foreign fund outflows, crude oil prices, global cues, domestic and global macroeconomic data.
Domestic equity benchmarks Sensex and Nifty 50 last extended losses for the fifth straight session in exceptionally volatile trade and logged their worst week in over two years amid weak geopolitical tensions and foreign outflows. Selling pressure was widespread, and the overall market breadth favoured declines.
The frontline indices lost about 4.5 per cent each for the week, their worst since June 2022. Overall, the indices ended the truncated September 30-October 4 week after three straight weeks of positive returns. From their record highs on September 27, the benchmarks have dropped over five per cent.
The 30-share BSE Sensex tumbled 808.65 points or 0.98 per cent, settling at a three-week low of 81,688.45. The NSE Nifty 50 slumped 235.50 points or 0.93 per cent to settle at 25,014.60. On a weekly basis, Sensex tanked 3,883.4 points or 4.6 per cent and Nifty 50 by 1,164.35 points or 4.5 per cent in just four sessions, their worst week in the past two years.
The sentiment was bearish from the start, driven by escalating tensions in the Middle East, which raised crude prices amid fears of supply disruptions. Additionally, persistent foreign capital selling raised concerns about a potential fund shift to China following their announcement of a series of stimulus measures, further dampening market optimism.
India VIX, or the India Volatility Index, measures the market's expectation of volatility in the Nifty 50 index, rose by (+18.10 per cent) and closed the week at 14.12. Interestingly, broader indices performed relatively better, losing between 2.5 per cent and 3.2 per cent, indicating more pressure in large-cap stocks.
The decline was broad-based, with all major sectors closing in the red except for metals. Realty, auto, and energy were among the top losers. Over the past five trading sessions, Indian stock markets have experienced a substantial decline in investor wealth, with approximately ₹13 lakh crore being wiped out.
“We expect markets to consolidate this week amid cautiousness due to fears of increasing tensions in West Asia. With the start of the earning season next week, stock-specific action will continue. Also, the focus will remain on interest-sensitive stocks amid the RBI policy meeting. Although a rate cut is not on the table, commentary will hold great importance,” said Siddhartha Khemka, Head - Research, Wealth Management, Motilal Oswal Financial Services Ltd.
This week, the primary market will witness moderate action as few new initial public offerings (IPO) and important listings are slated across the mainboard and small and medium enterprises (SME) segments. The week will be critical from the domestic and technical point of view as investors will track corporate results, global markets and macroeconomic data.
Investors will be busy analyzing corporate earnings in the coming week as the first batch of Q2FY25 results is set to be released. Shares of India's top software services provider, Tata Consultancy Services (TCS), will be in focus, as the IT giant will kick off the Q2 earnings season on October 10.
"The spike in oil prices due to the mounting tensions in the Middle East may add input cost inflation and thereby impact the earnings visibility of domestic companies. The paint sector is likely to be impacted as its raw material is largely a derivative of crude oil," said Vinod Nair, Head of Research, Geojit Financial Services.
“However, the recent price hike and expectation of a pickup in demand in H2FY25 will provide an accumulation opportunity for Asian Paints. The market is likely to witness a consolidation phase as the expensive valuation and unfavourable macro situation may influence investors to adopt a sell-on-rally strategy,” added Nair.
The central bank's rate-setting monetary policy panel will begin deliberations for the fourth policy verdict for FY25 this week. Headed by RBI Governor Shaktikanta Das, the six-member MPC will meet for three days—from October 7 to 9—and announce its decision on October 9 at 10 a.m.
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The RBI has kept the repo rate unchanged at 6.5 per cent since February 2023. Market volatility may persist in the run-up to the MPC decision, and rate-sensitive banking stocks will be in focus throughout the week.
D-Street analysts and economists broadly expect the central bank to maintain its current stance to bring India's inflation near its target level, even though the US Federal Reserve recently delivered its supersized interest rate cut by 50 basis points for the first time in four years.
However, analysts also say any indication of a future rate cut in commentary could lift market sentiment amid global volatility. "The RBI is expected to keep the benchmark rate unchanged in its policy review. This aligns with market expectations, as the central bank aims to bring inflation closer to its medium-term target of four per cent while supporting economic growth," said Pravesh Gour, Senior Technical Analyst at Swastika Investmart Ltd.
Garuda Construction and Engineering IPO will open for subscription in the mainboard segment on October 8. Hyundai Motor IPO and the Afcons Infrastructure IPO will open for bidding soon; however, the IPO dates have not been announced as of the time of filing this story.
Shiv Texchem IPO will open for subscription in the SME segment on October 8. Among listings, shares of six SMEs will debut on either BSE SME or NSE SME. From the mainboard segment, no new listings have been scheduled yet.
On the domestic front, foreign institutional investors (FIIs) turned net sellers, offloading ₹40,511.50 crore in the cash segment, while domestic institutional investors (DIIs) maintained their buying momentum with purchases totalling ₹33,074.39 crore in the same segment.
Foreign portfolio investors (FPIs) took a U-turn in October and snapped their three-month streak, turning net sellers in Indian markets amid the ongoing geopolitical tensions. This comes after an aggressive buying streak recorded in September when FPI inflows were the highest year-to-date (YTD) and hit a nine-month high.
"FPIs are shifting funds away from India, viewing it as a relatively expensive market. Instead, they are turning to China, anticipating an economic revival. The optimism was fueled by the People's Bank of China (PBoC) cutting interest rates and lowering the reserve requirement ratio alongside fiscal stimulus measures. These moves triggered a strong rally in both Chinese and Hong Kong markets, pushing commodity prices," said Pravesh Gour.
The diversion of foreign funds to China after the country's central bank introduced a substantial monetary stimulus by reducing the reserve requirement ratio (RRR) by 50 basis points triggered selling pressure in emerging markets.
The move by Chinese authorities has fuelled expectations of further measures to support China's weakening economy. The escalating geopolitical tensions in the Middle East, particularly after Iran launched nearly 180 ballistic missiles at Israel, further dampened market sentiment.
“Investors are now bracing for a possible retaliatory strike by Israel, potentially targeting Iran’s nuclear facilities or major oil fields. A more than 11 per cent surge in oil prices this week has reignited inflationary concerns, which could undermine the growing optimism surrounding global interest rate cuts,” said Palka Arora Chopra, Director of Master Capital Services Ltd.
Investors will closely monitor developments in the geopolitical situation and its impact on crude prices. The trend in foreign flows and the positioning of domestic flows will also be crucial. "Notably, the US markets have shown resilience despite rising volatility, which could potentially trigger a rebound in Indian markets as well,'' said Ajit Mishra – SVP, Research, Religare Broking Ltd.
The market's outlook will be guided by major global economic data, such as US FOMC meeting minutes, US core CPI (MoM) (September), US CPI (MoM) (September), US initial jobless claims, US PPI (MoM) (September), and UK GDP data. Commodity prices, the US dollar index, and key US macroeconomic data will determine market direction. Geopolitical developments will also continue to be a significant factor on the global front.
Global crude oil prices settled higher in the previous session, logging their biggest weekly gains in over a year on the mounting threat of a region-wide war in the Middle East due to Israel and Iran. However, gains were limited as US President Joe Biden discouraged Israel from targeting Iranian oil facilities.
Brent crude futures rose 43 cents, or 0.6 per cent, to settle at $78.05 per barrel, while US West Texas Intermediate crude futures gained 67 cents, or 0.9 per cent, to close at $74.38 per barrel. On a weekly basis, Brent crude gained over eight per cent, the most in a week since January 2023.
The US WTI benchmark gained 9.1 per cent week-over-week, the most since March 2023. Back home, crude oil futures settled 3.07 per cent higher at ₹6,350 per barrel on the multi-commodity exchange (MCX). On Thursday, oil surged over five per cent after the US confirmed it was in talks with Israel on whether it would support a strike on Iranian energy infrastructure.
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Technically, Nifty's sharp decline erased the gains of the past two weeks and breached multiple short-term moving averages and the rising trendline on the daily chart. The India VIX has also surged over 18 per cent, signalling increased participant fear.
Given these factors, further downside in the index is possible, with the next support at 24,750 and major support at 24,350 (100 DEMA). In a recovery, the 25,500-25,800 zone is likely to act as resistance.
“Sector-wise, IT, pharma, and metals show relative strength, while other sectors are vulnerable to further profit-taking. Traders are advised to limit long positions and consider shorting weaker sectors until Nifty decisively reclaims the 25,600 level,” said Ajit Mishra of Religare Broking Ltd.
Palka Arora Chopra of Master Capital Services also said, “Nifty 50 has formed a strong bearish candle on the weekly chart, signalling intense selling pressure at higher levels. After breaking the key Fibonacci support at 25,100 and closing negatively, the next critical support is 24,700.”
“A breakdown below this could lead to further declines toward 24,400. On the upside, a close above 25,300 may boost bullish sentiment and drive the index toward 25,700. With heightened volatility, traders are advised to stay cautious and consider buying at critical support levels,” she added.
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Bank Nifty has formed a bearish candle on the weekly chart, closing below 51,500, indicating strong selling pressure, especially in large private banks. The next key support is at 51,000; a breakdown may push the index down towards 50,300.
“On the upside, if the index sustains above 51,900, it may gain buying momentum toward 52,400. Given the week’s closing and increased volatility, traders should adopt a buying strategy around critical support levels to capitalize on potential market fluctuations,” said Palka Arora Chopra.
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.
