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The Indian stock market continued its downward trend for the sixth consecutive session, with the benchmark indices, Nifty 50 and Sensex, closing in the red. While the indices recovered somewhat from their intraday lows, the broader market took a significant hit, with the smallcap and midcap indices shedding around 3% and 2%, respectively. This downturn can be attributed to a confluence of factors, primarily the continued outflow of foreign institutional investors (FIIs) from the Indian market, coupled with escalating concerns over rising crude oil prices and a looming earnings season.
Foreign institutional investors have been selling off Indian equities at a significant rate in October, with total outflows reaching a staggering Rs 30,719.57 crore. This exodus of funds has been driven by the attractiveness of the Chinese market, which boasts cheaper valuations following a series of stimulus measures aimed at reviving its struggling property sector. This shift in investor sentiment towards China has further fueled the market downturn in India, as investors seek more favorable investment opportunities.
Adding to the negative sentiment, the rising tensions in the Middle East have also led to a spike in crude oil prices. This escalation in global oil prices not only weighs on the economy but also dampens investor confidence, further contributing to the market decline. The ongoing earnings season, with information technology majors set to announce their quarterly numbers later this week, adds another layer of uncertainty. Motilal Oswal Financial Services predicts a sluggish earnings growth in Q2, potentially leading to a moderation in earnings in the face of expensive valuations.
The Reserve Bank of India's (RBI) three-day monetary policy meeting, which began today, also contributed to the risk-off mood among investors. The market expects the RBI to maintain its cautious stance on interest rates, potentially further dampening sentiment. However, some experts believe that the trend of outflows towards China is unlikely to persist for much longer. Samir Arora, Founder and CEO of Helios Capital, argues that while a small percentage of funds may be moving out of India to invest in China, the overall impact on the Indian market will be limited.
Technically, analysts foresee more downside potential for the Nifty 50 in the near term. Sameet Chavan, Head Research, Technical and Derivative at Angel One, highlights the formation of a bearish candle on the weekly charts, suggesting further pain for the index. He identifies the next key support level at the September swing low of 24,750, followed by 24,500. On the upside, he sees Friday's high near 25,500 acting as a stiff resistance, with the immediate resistance level at 25,300. The fear-gauge India VIX surged 6% to 15, indicating heightened volatility in the market.
Source: Nifty, Sensex extend downturn to sixth session, broader market bleeds