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The Indian stock market is facing a significant downturn, with the Nifty index down 10% from its 52-week high and the Sensex losing over 8,300 points. While the headline indices are nearing bear market territory, defined as a drop of 20% or more from the peak, many individual stocks have already entered bear market territory. Over 900 stocks with a market capitalization above Rs 1,000 crore are down at least 20% from their 52-week highs.
The current correction is the most significant in terms of both time and price since March 2023. This downturn has been fueled by a combination of factors, including the outflow of foreign institutional investors (FIIs) from Indian stocks. FIIs have been pulling out money from India as they seek better opportunities in markets like China, which is offering lower valuations and stimulus measures.
The Q2 earnings season further exacerbated the situation, with the highest number of downgrades since early 2020. This suggests that company profits are not supporting the current high valuations, at least in the short term. Since October, FIIs have pulled out a record Rs 1.2 lakh crore from the Indian stock market.
Several analysts are concerned about the continued selling pressure from FIIs, particularly with the rise in the dollar index and US 10-year bond yields. These high yields in US bonds are attracting investors to the US market, leading to further outflows from emerging markets like India. This trend is expected to continue to weigh on Indian stock markets.
Despite the gloomy outlook, some analysts believe that the market may stabilize in the coming quarters. The Q3 earnings season is expected to show some recovery, and Q4 could be even stronger. The increasing infrastructure projects and fiscal spending are also expected to boost market sentiment in the long term.
Technically, the Nifty index is currently trading near its 200-day moving average and appears oversold, suggesting a potential temporary bottom around the 23,500 level. However, the 24,500 level is likely to act as a key resistance. While a relief rally in Nifty and Bank Nifty is possible, Midcap and Smallcap indices may experience further downside risk.
Source: Nifty down 10% from peak, Sensex weaker by 8,000 points in less than 2 months. Bear market next?