Sensex and Nifty's October Decline Matches Covid Crash Levels - A Red Flag?
October is proving challenging for the Indian stock market, with Sensex and Nifty facing significant declines. With ₹82,000 crore exiting due to FII outflows, experts warn of a correction but see potential for future recovery.
Indian market struggles with severe downturn in the period October 2022 and has reached its worst since the Covid market crash of 2020. Foreign institutional investors have withdrawn nearly Rs 82,000 cr and the Sensex has slipped by about 5 percent this month till now as compared to June 2022's previous decline of 4.58%.
This has come at a time when the earnings season has been rather dull and there has been a flood of IPOs and Qualified Institutional Placements (QIPs) draining liquidity from the market. The total market capitalisation of all stocks listed on the BSE has plummeted to about ₹29 lakh crore.
If Dr. VK Vijayakumar from Geojit Financial Services were to be quoted, it would imply that it is unlikely for a crash to happen; however, corrections are happening-and this correction is still more or less primed by continuous FII selling, which has reached unprecedented levels this month-more than even during the initial Covid panic.
Analysts attribute it to the fact that valuation levels in India have run too high and that foreigners may have aggravated the FII outflows by moving their money to better places. The muted earnings growth for Q2, only 2% YoY for Nifty-50 firms, further stoked alarm. Goldman Sachs had recently downgraded Indian equities from buy to neutral, saying high valuations and a less favorable market backdrop were driving that view.
While the outlook is fairly serious, some analysts think that the current decline is overdone. Gautam Shah of Goldilocks Premium Research believes that markets are approaching an oversold condition with limited downside remaining. He emphasizes the chance for investors to ride a rebound once clarity about future earnings growth emerges.
The markets would closely watch to witness stabilization signs as October unfolds, amidst the broad geopolitical tensions and the uncertainty surrounding the US elections.
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