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In a dramatic downturn, the Indian stock market has seen Sensex fall by 4,100 points in just five days, erasing Rs 16 lakh crore from investors’ portfolios. Global factors, including the Iran-Israel conflict and China’s economic stimulus, have left the market in disarray. Foreign Institutional Investors (FIIs) have pulled out a staggering Rs 32,000 crore, and Nifty has sunk below key support levels, triggering a sharp correction.
Market Bloodbath as Sensex Crashes
Dalal Street faced a severe blow as the Sensex plunged 1,769 points in a single day before closing 809 points lower. Nifty also saw a dip, ending below its crucial support level of 25,000, reflecting a near 1% decline. Since September 27, the market has been in freefall, with Sensex losing 4,148 points in total. This sharp decline wiped out Rs 15.9 lakh crore from the combined market capitalization of BSE-listed stocks, which now stands at Rs 461.26 lakh crore.
This week marked the worst performance for Sensex and Nifty since June 2022, as both indices recorded losses of 4.3% and 4.5%, respectively.
Foreign Investors Flee Amid Valuation and Geopolitical Concerns
The downturn is primarily driven by a combination of high market valuations and escalating geopolitical tensions. Institutional investors had already expressed concerns about peak valuations in what seemed to be an overheated bull market. China’s recent stimulus measures have also accelerated the outflow of foreign capital from India, with investors opting for cheaper valuations in China.
The geopolitical scenario worsened after Iran launched 200 ballistic missiles at Israel in retaliation for Israeli airstrikes in Lebanon. This escalation has made foreign investors wary of emerging markets like India. In the last four trading sessions, FIIs have pulled out Rs 32,000 crore, including a record Rs 15,243 crore in a single day on Thursday.
China’s Stimulus Fuels Sell-Off
The Chinese government’s latest round of economic stimulus has exacerbated the sell-off in Indian markets. Foreign money managers have been reducing long positions across Asian markets to fund investments in China, where stock prices are seen as more attractive due to the lower valuations.
Nifty broke below its 20-day exponential moving average (EMA) support of 25,556, turning the short-term trend bearish. With additional selling pressure kicking in, the index fell further, and analysts are now closely monitoring the next support level at 25,150.
Will the Crisis Persist?
Despite the sharp fall, not all investors are convinced of the long-term potential in China. Rajiv Jain of GQG Partners pointed out that the Chinese market has seen “start-stop” rallies in recent years. “They’re basically a trade. But can you really invest in it for three years, five years?” he remarked.
On Dalal Street, analysts like Dharmesh Shah of ICICI Direct expect the Nifty to stabilize at its 50-day EMA. Historically, the index has corrected by 5-6% several times in 2024, finding support at this level. Shah predicts that Nifty may see a recovery to 25,600-25,700 in the coming sessions, barring further negative developments.
Domestic Investors Hoard Cash, Await Market Dip
Amid the market volatility, several domestic investors, including high-net-worth individuals, portfolio management services (PMS), and mutual funds, have been sitting on significant cash reserves. Mutual funds alone are holding a cash pile of Rs 1.86 lakh crore, with cash as a percentage of total assets at a five-year high.
Looking ahead, the market will be keenly watching the upcoming Q2 earnings season and the outcomes of assembly elections in Haryana and Jammu and Kashmir, which could further impact investor sentiment.
