Over 5% drop: Nifty's October performance is worst in years
What's the story
The Indian stock market, which was on a steady upward trajectory for the first nine months of 2024, is now witnessing a major downturn. The Nifty 50 has dropped 5.4% in October alone, its biggest monthly decline since the COVID-19 market crash in March 2020. This shift from bullish to bearish sentiment has prompted investors to sell during rallies instead of buying on dips.
Market analysis
Nifty 50's performance: A closer look
The Nifty 50, after hitting an all-time high of 26,777 in late September, has corrected by 7%. In the 16 trading sessions of October, it has closed in the green only four times. The index recorded losses of over 0.5% on four occasions with the worst session on October 3 when it tumbled by 2.2%. The last time the index gained over 1% in a single session was on September 20.
Market dynamics
Factors contributing to market sell-off
The recent market sell-off has mainly been driven by disappointing earnings reported by companies for the September quarter. The steady rise of Indian stocks during the first three quarters of 2024 had taken them to expensive valuations globally. However, most firms have fallen short of street estimates in their September quarter results, triggering investor concerns over current stock valuations.
Economic impact
Slowing consumer demand and rising commodity prices
The recent fall in auto and FMCG sales, especially in urban areas, owing to weakening consumer spending and rising commodity prices, has also added to the jitters. Analysts have been warning about the unsustainable valuations of Indian stocks, hinting that a correction is around the corner. Despite the recent pullback in stocks, analysts remain skeptical about current valifications as they believe most stocks are still trading at expensive levels.
Investment shift
FPIs's withdrawal from Indian equities hits record high
Foreign Portfolio Investors (FPIs) have pulled out a record ₹92,143 crore from Indian equities in October, the largest monthly outflow on record. The previous highest outflow was during the pandemic in March 2020 when FPIs sold ₹65,816 crore worth of Indian stocks. Reportedly, overseas investors are rebalancing their portfolios and looking for more reasonable stock valuations in China, supported by Beijing's recent stimulus measures.