The Indian stock market experienced a substantial downturn on Friday, October 25, with major benchmarks—the Sensex and Nifty 50—each declining by over a percent during intraday trading. The mid- and small-cap sectors were particularly hard hit, witnessing declines of up to 3 percent.
Market Performance Overview
The Sensex dropped by 864 points, equivalent to 1.1 percent, closing at 79,201, while the Nifty 50 fell by 1.3 percent to settle at 24,094. Additionally, the BSE Midcap and Smallcap indices plummeted by 2.6 percent and 3.2 percent, respectively. Overall, the market capitalization of BSE-listed companies decreased from approximately ₹444 lakh crore to nearly ₹435 lakh crore, leading to a loss of about ₹9 lakh crore for investors in just one session.
The volatility index, India VIX, surged over 7 percent, reflecting heightened anxiety among market participants. The Nifty 50 has now seen a continuous decline for five sessions, falling over 8 percent from its peak of 26,277.35 reached on September 27.
Key Factors Behind the Market Decline
Several factors have been identified as contributing to this market selloff:
1. Foreign Capital Outflow
The aggressive selling by foreign portfolio investors (FPIs) is viewed as a primary catalyst for the market’s downturn. In October alone, FPIs have divested over ₹98,000 crore from Indian equities. Analysts note that the redirection of funds to more attractively valued Chinese stocks, following recent economic stabilization measures from Beijing, has exacerbated the situation.
“The FPI selloff is unprecedented. They had not sold Indian equities worth this much even during the COVID-19 crash and global financial crisis,” remarked a Chief Investment Strategist from Geojit Financial Services, emphasizing that the usual buy-on-dips strategy has failed amid this relentless selling.
2. Weak Q2 Earnings
Earnings reports for the September quarter have been disappointing, raising alarms about the market’s stretched valuations. Recent assessments indicate subdued performance across various sectors, leading to concerns about profitability and volume risks. According to the same strategist, “Q2 numbers have been subdued, and the concern is that along with weak rural consumption, we also have weak urban consumption.”
3. US Election Uncertainty
The upcoming US elections are casting a shadow over market sentiment. With the election date just around the corner, the close race between Kamala Harris and Donald Trump is creating apprehension. If Harris prevails, she may continue the trade policies of the Biden administration, whereas a Trump victory could introduce more aggressive trade negotiations and potential tariffs.
“Although it is a close call, there is a possibility of Trump returning,” the strategist noted, highlighting the potential impacts on global trade dynamics.
4. Geopolitical Tensions
Geopolitical developments, particularly in the Middle East, are also influencing market behavior. Recent military actions and discussions around ceasefire negotiations are contributing to overall market volatility.
5. Elevated Valuations
Despite the recent corrections, many experts argue that the market remains overvalued. The Nifty 50’s current price-to-earnings (PE) ratio stands at 22.8, surpassing its one-year and two-year averages. “We still do not have a buyable comfort despite the recent correction. The current market valuation still remains high,” the strategist concluded, underscoring ongoing concerns about justified valuations.
The combination of these factors has led to a tumultuous period for the Indian stock market, leaving investors anxious as they navigate this challenging landscape.
(The information provided in this article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.)
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