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The Indian stock market experienced a significant downturn on Thursday, November 14, marking its sixth consecutive day of decline. The Sensex, a benchmark index representing the 30 largest and most actively traded companies on the Bombay Stock Exchange (BSE), fell by 266 points or 0.34 percent, settling at 77,424.81. Meanwhile, the Nifty 50, a similar index on the National Stock Exchange (NSE), shed 116.25 points or 0.5 percent, closing at 23,486.10.
The downturn can be attributed to several factors, including weak global trends, a strengthening dollar, a weakening rupee, and continuous selling by foreign portfolio investors (FPIs). The dollar index, a measure of the US dollar's strength against a basket of other currencies, surged by 1.8% in November, reaching its highest level since July. This surge, fueled by Donald Trump's victory in the US election, put pressure on emerging market currencies, including the Indian rupee.
The Indian rupee also weakened, depreciating by 1 paisa to a historic low of 84.40 against the US dollar. This decline was driven by persistent foreign fund outflows and the strong dollar. The rupee's depreciation further exacerbates the situation, increasing import costs and potentially driving inflation higher.
Foreign portfolio investors (FPIs) have been consistently selling Indian stocks for 32 consecutive sessions, offloading shares worth ₹364.35 crore on Tuesday alone. This brings total outflows for November to ₹23,911 crore. Concerns over extreme valuations, slower-than-expected earnings, and weak economic indicators have dampened investor sentiment, leading to this exodus of FPI capital.
The Indian economy is facing a cyclical slowdown, with Q2 earnings from Indian corporates leading to the most significant earnings downgrades since early 2020. This has further weighed on investor sentiment, contributing to the stock market decline. While the Reserve Bank of India (RBI) has kept interest rates unchanged, central banks globally, including the US Federal Reserve, have begun reducing rates.
Experts advise investors to be cautious and focus on quality stocks in sectors with strong demand, such as banking, new-age digital companies, hotels, pharmaceuticals, and IT. Sectors like cement, metals, and petroleum refining, which are facing a growth slowdown, should be approached with caution.
The stock market crash has raised concerns about the future outlook for the Indian economy. However, experts remain cautiously optimistic, citing the huge liquidity at the disposal of domestic institutional investors (DIIs) and the sustained flows into these funds. The key question remains: how long can these flows sustain, and when can we expect a rebound in earnings growth and strong GDP indications?