Sensex, Nifty Down 10% from Record High: Smart Trading Strategies for the Correction Phase - Read Now

Indian stock markets are witnessing a significant correction, with Sensex and Nifty 50 falling 10% from their September 2024 peaks. This marks the sixth weekly loss in seven weeks for the indices, driven by foreign fund outflows, weak corporate earnings, and inflation concerns.

The Sensex closed at 77,580.3 yesterday, down 8,397.94 points (9.76%) from its all-time high of 85,978.25 on September 27. Similarly, Nifty dropped to 23,532.7, shedding 2,744.65 points (10.44%) from its peak of 26,277.35.

Why Are Markets Falling?

Market experts attribute the correction to several factors:

• Foreign Fund Outflows: October recorded foreign portfolio outflows worth ₹94,000 crore ($11.2 billion), the worst in a decade.
• Inflation Concerns: Retail inflation reached a 14-month high due to rising food prices.
• Weak Earnings: Disappointing Q2 results led to earnings downgrades, denting investor sentiment.
• Global Trends: A strengthening US dollar and rising bond yields added external pressure on Indian equities.

D-Street Experts Speak

According to Vishnu Kant Upadhyay, AVP at Master Capital Services Ltd., “The banking sector faced steep losses as investors expect the Reserve Bank of India to delay rate cuts due to high inflation.”

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the potential for short-term bounces but warned that unfavourable fundamentals may prevent sustained recoveries.

Trading Strategies for the Correction Phase

Market corrections can be challenging, but they also offer opportunities. Here’s how investors can navigate this phase:

1. Leverage Hedging Strategies:

   • Hedging with Options and Futures: Using derivative instruments allows investors to offset potential losses during market downturns.
   • Algorithmic Trading: Automated trading can help reduce emotional decision-making and respond swiftly to market changes.

   “Hedging strategies provide balance, enabling investors to maintain portfolio stability during volatile periods,” said Rahul Ghose, CEO of Hedged.in.

2. Invest in Mutual Funds:
   With Nifty down 10%, experts view this correction as a strategic entry point for mutual fund investments.

   • October saw equity mutual fund inflows surge to ₹41,886 crore, marking a 22% monthly increase.
   • Sectors like mid-cap, large-cap, and consumption-driven funds present long-term growth potential.

   Swapnil Aggarwal, Director at VSRK Capital, said, “Market dips offer a chance to strengthen portfolios. Investors should focus on long-term trends and view corrections as opportunities rather than setbacks.”

3. Diversify Portfolio:

   • Small- and Mid-Cap Stocks: While these have underperformed recently, they are poised for recovery in the long term.
   • Consumption-Driven Sectors: As domestic demand stabilizes, these sectors can drive returns in the coming quarters.

Broader Market Trends

Small- and mid-cap indexes have seen sharper declines, losing 4.6% and 4.1% this week, respectively. However, year-on-year gains in these segments remain strong, with indexes up 10-15% on average.

Despite weak market performance, domestic mutual fund inflows and strong liquidity among retail investors are positive factors. Analysts believe that domestic demand could act as a cushion against global headwinds, supporting the market’s recovery in the medium term.

What Lies Ahead?

The correction phase highlights the need for a balanced investment approach. With foreign outflows expected to continue and global factors like rising US bond yields exerting pressure, investors should focus on strategic investments and avoid panic-driven decisions.

For those with a long-term perspective, this correction offers a valuable opportunity to enter the market at attractive levels, particularly in sectors with growth potential.