The Indian stock market faced a challenging week, with benchmark indices extending their longest losing streak since August 2023. As foreign investors continued to withdraw amidst a backdrop of disappointing Q2 earnings, both the Sensex and Nifty saw sharp declines. By the end of the trading session, the NSE Nifty 50 was down 2.7%, while the BSE Sensex fell 2.2%, marking four consecutive weeks of losses for both indices. This decline reflects growing investor apprehension about the economic outlook, exacerbated by negative sentiment in the market.
On Friday, the situation intensified, with the Nifty50 plummeting over 300 points and the Sensex dropping nearly 900 points, resulting in a significant closing drop. The Sensex ended the day down 662.87 points, closing at 79,402.29, while the Nifty50 settled 189.55 points lower at 24,209.85. These figures illustrate a bearish trend, as both indices dipped below the critical 100-day Exponential Moving Average (EMA), raising alarms among traders and investors alike.
Market analysts attribute the decline primarily to aggressive selling by foreign institutional investors (FIIs), who have been reallocating their capital towards markets like China, where recent stimulus efforts have made investment more appealing. Santosh Meena, Head of Research at Swastika Investmart, noted that valuation concerns are prompting FIIs to seek better opportunities outside India. He also pointed to the disappointing earnings reports from Indian firms, particularly in the consumption sector, which highlight an emerging economic slowdown, especially concerning urban consumption. This trend is affecting financial stocks as well.
Moreover, the market is experiencing selling pressure from high-net-worth individuals (HNIs) and retail investors who are navigating a deeper correction than they have faced in recent times. Vinod Nair, Head of Research at Geojit Financial Services, echoed these sentiments, stating that the domestic market is grappling with persistent FII selling, which has adversely impacted nearly all sectors, apart from fast-moving consumer goods (FMCG). However, domestic institutional investors (DIIs) have played a crucial role by absorbing much of the selling pressure, helping to mitigate further declines.
Despite these challenges, there are signs that the domestic market could be reaching oversold conditions, potentially allowing for a tactical bounce in the near term. Nair suggested that the resilience seen in recent manufacturing data raises hopes for an economic recovery in the second half of FY25, which might encourage investors to start accumulating quality stocks at current valuations.
Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services, cautioned against complacency, pointing to ongoing technical challenges and the risk of further price corrections. He highlighted that the breach of the 100-day EMA has amplified selloff pressures, with several indicators signaling bearish divergence. As a result, he advised investors to remain vigilant, particularly regarding mid-cap and small-cap stocks, which have been hit particularly hard during this downturn.
With broader market indices, including small-cap and mid-cap stocks, suffering significant weekly losses of 6.5% and 5.8%, respectively, Meena suggested that this might be an opportune time for investors to accumulate high-quality large-cap stocks, especially in the financial sector, where valuations are becoming increasingly attractive.
Overall, both the Nifty and Sensex are approaching their worst monthly performances since the COVID-19 crash in March 2020, highlighting a period of increasing investor anxiety concerning market valuations, the economic outlook, and potential implications stemming from the upcoming October expiry. As the market continues to navigate these turbulent waters, investor sentiment will be key in determining the future trajectory of these indices.
