Market Update: Nifty Drops 10% from Peak, Foreign Outflows and Global Factors Weigh on Indian Stocks - Read Now
Indian stock market is passing through a stormy phase since both Nifty and Sensex indices have registered huge falls. While Nifty has fallen more than 10% from its recent high, sharp corrections of Sensex have remained vital to the investors who are keeping a close watch on the market amidst continuing foreign institutional investor outflows, higher inflation, and globalization. On 14 November, GIFT Nifty indicated weak Indian equities to start with; therefore, the downtrend may likely be maintained considering the huge weightage domestic and global factors on the market sentiment.
Market Performance and Broader Trends
Indian stock markets presented a sharp pullback on Wednesday. This was the fifth consecutive session of losses for the benchmark indices. The NSE Nifty 50 fell by 324 points to close at 23,559, and the BSE Sensex plummeted a whopping 984 points to close at 77,691. This pullback sent the market index below its critical 200-day moving average of 23,535-a technical level that investors had been tracking closely for support.
Other broader market indices also reflected the downtrend as the Nifty Smallcap100 and Nifty Midcap100 declined 2.96% and 2.64%, respectively. Most sectors reflected a sharp correction with auto and metal being the worst hit. Some of the major losers included Tata Steel, Hindalco, and Mahindra & Mahindra.
Asian Markets and Global Trends:
Asian markets mixed it up on Thursday. Japan's Nikkei 225 was up 0.42%, while South Korea's Kospi rose by 0.27%. Australian markets also had a small gain, with the S&P/ASX 200 up 0.38%. But mainland Chinese indices are still struggling, with the CSI300 shedding 0.36% and the Shanghai Composite falling 0.09%. Moves in the region are in part due to optimism over US inflation for October, boosting outlooks for an anticipated Federal Reserve cut in December which has been spreading tentatively throughout the region.
The U.S. Dow Jones posted a marginal gain, closing 47 points up, while S&P 500 moved barely, and Nasdaq fell 0.26%. Fresh inflation data showed consumer prices rose in line with estimates, giving an impetus to the speculation that the Federal Reserve could announce a rate cut by the end of the year.
Continuing sell-off by FII and impact on Indian equities
FIIs have consistently been selling Indian equities; they saw major outflows since late September. The cumulative FII sell-off touched more than $14 billion, as investors withdraw funds from emerging markets primarily on concern over high valuations, weak earnings and macroeconomic headwinds. In November, FIIs participation in IPOs dipped to 15% compared with regular 30%.
The current FII exit has weighed on both primary as well as the secondary markets. This has resulted in a sharp decline for large-cap stocks while midcap as well as smallcap segments have also moved sharply down. This could be an overall "risk-off" direction taken by investors who are relooking at their portfolios in relation to a broader market volatility.
Earnings Season Brings Little Cheer to Investors
India Inc.'s earnings for the quarter gone have brought little respite to investors. Quite a few firms reported their worst performance in four years, largely because of the squeezing effect of rising costs and inflationary pressures on profit margins. While the Consumer Price Index touched 6.21% in October — the highest in 14 months — inflation has stayed above the Reserve Bank of India's tolerance band all this while. Because of this, market experts now expect the RBI to delay any possible rate cuts further, to February or beyond, further dampening market optimism.
Global Economic Factors and Rupee Weakness
In the worst-case scenario for emerging markets like India, the strength in the U.S. Dollar index and also a rise in U.S. bond yields will not be so welcoming to many investors. The US Dollar index hit an all-time high, and U.S. 10-year Treasury yields went up to 4.42%, making investors shy away from riskier assets. The Indian Rupee ended at 84.40 against the Dollar as capital outflows continued.
In addition, stimulus packages in China had no positive effect on increasing the demand for metals around the globe; instead, the metal stock worldwide went down. During this trend, the major metal stock in India saw huge losses, including Tata Steel and Hindalco.
Technical Analysis and Support Levels
The Nifty broke the crucial 200-DMA, hinting that there could be a sharp correction from its record high of 26,277.35 marked in September. The analysts point out that even though the Nifty is heavily oversold at the level of 23,500, such a number might provide support temporarily. However, the level of 24,500 might act as a strong resistance, and the further downsides remain especially for Midcap and Smallcap indices, which also entered correction territory.
Swastika Investmart Ltd's market analyst Santosh Meena stated that this sell-off is the first big correction since March 2023, based on new stimulus by China, the much-weaker-than-expected Q2 earnings, and high FII outflows. According to him, if the market stabilises, a relief rally is still possible; however, uncertainty has been persistent.
Swiggy listing and expiry day in Bank Nifty have kept the sentiments of the market undeterred.
Market dynamics added on Swiggy in its stock market debut today, making it jump over 20% in initial trading, though the debut might have sucked in that much liquidity which would have otherwise traded into well-established equities and increased selling in the secondary. On the other hand, Thursday was the last weekly Bank Nifty options expiry as per the earlier SEBI structure, causing position squaring affecting banking stocks.
Midcap and Smallcap Stocks Hammered
Midcap and Smallcap stocks have also felt the real brunt of this downturn with the Nifty Midcap 100 crashing to the tune of 2.2% and the Nifty Smallcap 100 tumbling 2.5%. They have now entered correction territory as they have fallen over 10% from their respective highs. The popular names like GNFC, Metropolis, and NCC saw quite a decline that reflects a spread risk-off mood among investors.
While the midcap and smallcap stocks have been attracting eyeballs in the last few months as alternatives to high-priced large-cap stocks, the concern on earnings growth combined with sustained FII selling led to the rapid sliding of these stock prices, which tell us of vulnerabilities in the larger market environment of India.
Market Outlook and Volatility Expectations
Indian markets were expected to remain volatile after having high retail inflation and bond yields, while the world uncertainty was rising. The volatility index has jumped 7% during the day, that hints at caution on the investor's side. Technicians are focusing on the 200-DMA of Nifty, and also the other technical parameters, that can possibly come as a support level.
Although any relief rally could come if temporary support holds up, investors are still cautious about further downside risk, especially in the Mid-cap and Smallcap segments. Meanwhile, Nifty Bank has resistance at higher levels, which may also keep the financial stocks under pressure.
It would be quite natural for market participants to go into a defensive mode till clear support levels are stabilized in the wake of FII outflows, inflation concerns, and global headwinds in India's stock markets. The near term would closely watch the economic data in the coming months and the policy direction of the RBI for any signs about market stability.
