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The Indian stock market experienced a significant downturn in October, with both benchmark indices, Sensex and Nifty, facing heavy selloffs. This decline was attributed to a confluence of factors, including substantial foreign investor outflows, stretched valuations, disappointing earnings reports, and global uncertainties stemming from the upcoming US elections and escalating tensions in the Middle East.
The Sensex closed at 79,402, down 0.83%, while the Nifty settled at 24,180.80, marking a 0.9% drop. This marked the fifth consecutive session of losses for the Nifty, which had plummeted over 2.5% in the week and was now 8% below its all-time peak. Despite the October decline, the Nifty remained up 11% year-to-date in 2024 and 26.5% over the past year.
Analysts and market experts offered diverse perspectives and recommendations for navigating this challenging phase. Santosh Meena, Head of Research at Swastika Investmart, attributed the correction to heavy foreign institutional selling driven by valuation concerns and the rising appeal of the Chinese market. He also highlighted weak earnings reports, particularly from the consumption sector, indicating a slowdown in urban demand and impacting financial stocks. Meena suggested that the Nifty might test its 200-day moving average (DMA) around the 23,400 level before rebounding post-October expiry.
Krishna Appala, Senior Research Analyst at Capitalmind Research, described the correction as ongoing, with the Nifty down 7.8% from its recent peak and high volatility. He attributed the broader slowdown to sluggish demand and high input costs in consumer sectors, impacting margins. While rural demand could potentially benefit from a strong monsoon, urban markets continue to struggle, pressuring sales and profits. Appala advised investors to exercise caution with high P/E stocks due to earnings downgrades and potential further corrections.
Diwakar Rana, Fund Manager at Prudent Equity, highlighted the decline in recent market enthusiasm due to FII selling and disappointing quarterly results. Poor earnings in the consumer sector, impacted by urban and rural slowdowns, spurred a significant selloff. The banking sector also faced challenges with rising non-performing assets (NPAs), increased slippages, and lower profits as firms reported higher provisions. However, Rana viewed this as an opportunity for bottom-up, value-oriented investors, as several growth-oriented companies now trade at attractive valuations.
Technical analysts also weighed in on the situation. Aditya Agarwal, Head of Derivatives & Technical Analysis at Sanctum Wealth, observed continued selling pressure, with Nifty breaking below crucial support levels. He noted that the 24,000 level would serve as strong support, while resistance at 24,400 and 24,500 could hinder any near-term rally. With most technical indicators in oversold territory, Agarwal suggested a potential pullback towards 24,350 or 24,440 levels.
Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services, observed a steep fall in Indian benchmark indices, 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 heightened the selloff as short-term traders exited positions. Key oscillators also indicated bearish divergence, hinting at growing technical challenges and the potential for further price corrections in the near term.
In summary, while the current market 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.
Source: Market crash deepens! Nifty50 down 6.5% in October: What should investors do now?