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The Indian stock market experienced a significant downturn, with foreign portfolio investors (FPIs) leading the sell-off. This resulted in a substantial loss of investor wealth, totaling ₹8.75 trillion overnight. The sell-off, marking the fourth consecutive day of FPI withdrawals, caused the benchmark indices, Nifty 50 and Sensex, to plummet to their lowest points in 30 months. This dramatic decline was exacerbated by heavy selling from retail clients, further amplifying the market's negative trajectory. The Nifty and Sensex each fell by 1.5% on Friday, closing at 23,587.5 and 78,041.59 points respectively. This sharp decrease underscores the severity of the situation and the widespread impact on investor confidence.
The FPI net selling amounted to a provisional ₹3,597.82 crore, partially offset by net purchases of ₹1,374.37 crore from domestic institutional investors (DIIs). However, the significant outflow of FPI funds overwhelmed the DII investments, leading to the substantial market decline. The Indian rupee also experienced volatility, touching a new low before recovering slightly after intervention by the Reserve Bank of India (RBI). This currency fluctuation further highlights the market instability and the broader macroeconomic pressures impacting the Indian economy. The decline pushed both the Nifty and Sensex below their crucial 200-day simple moving averages (SMAs), a technical indicator suggesting a bearish trend.
The current market weakness is largely attributed to global factors, primarily the actions of the US Federal Open Markets Committee (FOMC). The FOMC's projection of only two rate cuts for next year, down from a previous forecast of four, reflects concerns about rising inflation and deteriorating investor sentiment globally. This has led to FPIs shifting their investments away from emerging markets like India, opting instead for the perceived safety of US bonds amidst a strengthening dollar and rising US bond yields. The 200-day SMA, a measure of the average trading levels over the past 200 days, currently sits at 23,834 for Nifty and 78,320.76 for Sensex, according to Bloomberg. The fact that both indices have fallen below these averages highlights the significant and sustained nature of the downturn.
Analysts predict that the market weakness will likely persist, with smallcap and midcap stocks (smids) potentially experiencing even steeper declines than large-cap stocks. The Nifty Midcap 150 and Nifty Smallcap 250 indices have already fallen significantly below their recent highs, indicating substantial losses in these segments. This disparity in performance between large-cap and smid-cap stocks suggests a selective sell-off, with investors prioritizing liquidating riskier assets. In contrast, the Nifty index has corrected 10.2% from its record high reached on September 27th, indicating a relatively less severe decline compared to the smid-cap indices. This divergence in performance is a key aspect of the current market dynamics.
The reasons behind the sell-off are complex and multifaceted, involving both domestic and international factors. Experts describe the bearish trend as 'imported,' emphasizing the influence of global market dynamics. Passive selling through foreign exchange-traded funds (ETFs) is contributing to the across-the-board decline, indicating a systematic withdrawal of foreign investment. Analysts anticipate the market uncertainty to persist until increased clarity emerges. Key events cited that may bring some stability include the change in US presidency and the upcoming Indian budget. The release of Q3 earnings will also provide further insights into the financial health of companies and could influence market sentiment in the coming months.
The market downturn has also negatively impacted the Indian rupee, pushing it to a fresh low against the US dollar before a slight recovery. The RBI's intervention, likely through dollar sales via public sector banks, helped stabilize the currency to some extent. Experts predict continued volatility in the rupee's value in the near future. Even anticipated positive market activity, such as rebalancing of indices like Sensex and FTSE, has been unable to offset the pressure from FPI selling. For instance, Zomato, expected to receive substantial inflows due to index rebalancing, still experienced a significant share price drop. Similarly, the International Gemmological Institute (India), which debuted at a premium, closed below its listing price, indicating the prevailing downward pressure on the market.
Despite the current market challenges, some analysts express a cautiously optimistic view. While acknowledging the possibility of further pain before stabilization, some believe the market is becoming reasonably valued, presenting opportunities for long-term investors to accumulate quality stocks. These analysts favor specific sectors like big private banks and consumer stocks with a strong rural presence, betting on a recovery in rural demand to counteract the slowdown in urban areas. This strategy reflects a focus on identifying companies with resilience and future growth potential amidst the current market volatility. The overall situation highlights the interconnectedness of global and domestic markets and the challenges faced by emerging economies in navigating volatile international financial conditions.