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The Indian stock market experienced a sharp decline on Friday, with the BSE Sensex plummeting over 1,600 points from its day's high and the NSE Nifty poised to test the sub-25,000 level. This significant sell-off was driven by a confluence of factors, including growing fears of a major Israeli retaliation following Iranian missile attacks, further escalating the Middle East conflict. The rising global oil prices, with Brent crude oil surpassing $78 a barrel, added to the anxieties among investors, prompting profit-taking amid geopolitical uncertainty.
A crucial factor contributing to the market downturn is the exodus of foreign investors from Indian equities. This trend, particularly evident in October, is driven by a perceived shift towards the battered Chinese mainland market. China's attractive valuations, bolstered by the recent stimulus measures implemented by the Chinese authorities, are drawing investors away from India. With the Chinese government focusing on reviving private consumption and the property sector, market analysts anticipate a resurgence in the Chinese economy and improved earnings for Chinese companies.
The Indian market, in contrast, is considered relatively expensive, with the Nifty trading at 21.5 times its one-year forward earnings, exceeding its historical average of 20.4 times. This premium valuation, while previously supported by India's strong economic performance and stable political environment, is now facing pressure from the influx of capital into China. While experts remain optimistic about the Indian market's long-term prospects, they favor largecap investments given the premium valuations of midcap and smallcap indices.
Despite the current market slump, the Indian economy continues to exhibit robust growth, with a projected GDP growth rate of 6-7 percent. Positive macroeconomic indicators, such as a stable currency, controlled deficits, and moderating inflation, provide a foundation for future growth. The ongoing development of digital and physical infrastructure further strengthens the Indian economy's long-term prospects. However, the immediate focus remains on the impact of foreign investor sentiment and the unfolding geopolitical events in the Middle East, which will likely influence market performance in the coming days.
Source: Sensex, Nifty: Why stock market fell sharply today; what's ahead?