MUMBAI: India’s equity market experienced a significant drop on Monday, with the benchmarks – NSE Nifty and BSE Sensex – falling by up to 2 per cent in intraday trades, marking their lowest levels in four months.
This fresh sell-off is attributed to increasing nervousness ahead of the US presidential election, continued selling by foreign portfolio investors (FPI) and foreign institutional investors (FII), and a disappointing earnings season for the September quarter.
The Nifty 50 index plummeted to an intraday low of 23,816, a decline of over 2 per cent or 488.2 points from the previous close. The BSE Sensex fell to an intraday low of 78,232.6, down 1,491.52 points or 1.87 cent. At the close, the Sensex stood at 78,782.24, down 941.88 points or 1.18 per cent, while the Nifty closed at 23,995.35, down 309 points or 1.27 per cent.
In the broader market, the BSE Midcap and Smallcap indices declined by 1.31 per cent and 1.65 per cent, respectively. Investors lost ₹6 lakh crore on Monday, with the market capitalisation of all BSE-listed firms dropping to nearly Rs 442 lakh crore from Rs448 lakh crore in the previous session.
The Nifty has now slipped below the 24,000 level for the first time since August 6, 2024, and from its all-time high of 26,277.35, the 50-share index has fallen by 2,282 points (or 9 per cent) in just over a month. Similarly, the Sensex has shed nearly 7,200 points from its all-time high.
Global markets are feeling the impact of the close race between Republican candidate and former president Donald Trump and the Democratic contender and current vice president Kamala Harris as the world’s largest economy prepares to elect its next president.
“We believe Harris’ win will be neutral/mean continuity for the economy, equities, and other asset classes. Trump would have a reasonable impact on emerging markets (EMs), equities, and currency due to de-globalisation. Amongst EMs, we expect a relatively positive impact for India in the long run,” noted Anjali Verma and Navaneeth Vijayan of Phillip Capital in a recent report.
The US Federal Reserve's policy outcome is scheduled for Thursday, with the market anticipating a 25-basis-point rate cut. However, this may not have a favourable impact on the market, as the rate cut is already priced in.
Experts have also indicated that the ongoing sell-off by FIIs has been exacerbated by weak Q2 earnings, dampening investor sentiment. FIIs sold nearly Rs 1.15 lakh crore in secondary markets last month, marking the highest-ever monthly outflow in India’s capital market history. This trend has continued into November, with FIIs’ net sales on Monday amounting to Rs 4,329.79 crore, according to provisional NSE data.
Apart from a few large names, most companies that have reported earnings so far have fallen short of street estimates for the September quarter. Domestic brokerage Motilal Oswal Financial Services reported that the earnings of the 34 Nifty 50 companies that have released results until October have remained flat year-on-year, compared to an estimated positive growth rate of 2 per cent last year.
Meanwhile, despite the recent correction, India’s equity market remains expensive on the valuation front. The current price-to-earnings (PE) ratio of Nifty 50 is at 22.7, above the two-year average PE of 22.2 and near the one-year average PE of 22.7.
"The recent correction has not significantly changed the rich multiples of the overall market. They are here to stay largely because of India's long-term growth and comfort. In terms of stock-specific performance, things have become much better because stock-specific corrections have been much higher," said Pankaj Pandey, head of research at ICICI Securities.
Looking ahead, investors may face more challenges as the India VIX, a measure of market volatility expectations, rose by 5.01 per cent to 16.70 on Monday. Ajit Mishra, SVP of Research at Religare Broking, stated that the breakdown of Nifty’s recent consolidation range of 24,000–24,500, combined with a noticeable increase in the volatility index, reflects growing pessimism among market participants.
“Should Nifty sustain levels below 24,000, it may move toward the next significant support, the 200-day Exponential Moving Average (DEMA) around 23,500. Traders are advised to adjust positions accordingly, prioritising risk management amid the expected rise in volatility,” added Mishra.
In the Nifty 50 index, 42 stocks closed with losses on Monday, with shares of Hero MotoCorp, Grasim, Bajaj Auto, Adani Ports and Special Economic Zone, and BPCL among the top losers, each falling by 3-4 per cent. Among the sectoral indices, Nifty Realty, Oil & Gas, and Media plummeted more than 2 per cent on Monday.