The benchmark indices are down as much as 16% from the peak they had scaled on September 26, 2024, when the Sensex closed at 85,836.12 and the Nifty scaled to 26,216.05, from 73,198 and 22,125 respectively, while midcaps are bleeding by 30%.
Last Friday alone the market tanked almost 2% each after the US president Donald Trump repeated 25% tariffs on Mexico and Canada and an additional 10% over the previously announced 10% duties on Chinese goods landing on the US shores from March 4, along with a threat to slap 25% on EU goods soon.
This is the longest losing streak running into five full months ending February 28, making it the worst period in the past 30 years, and the second worst bear-hug in history when the rout lasted eight months between September 1995 and April 1996, tanking by over 31%. The previous five months fall was during July-November in 1996, eroding the market value by 26%. But the current bloodbath is much higher in terms of losses, which is a staggering Rs 107 trillion in market cap and a whopping Rs 50 trillion erosion in investor wealth! And Dalal Street is the worst performer among all its peers since October by a very wide margin.
Yet, the irony is that anyone who is concerned—barring the harried and hapless investors—are stoically silent; especially the finance minister Nirmala Sitharaman, who after repeatedly seeking a response on February 17 during her post-budget presser just quipped: “if investors, especially foreign funds, are selling it just means that they are booking profit.”
What’s Plaguing the Markets?
There are myriads of issues that are running down the market and investor sentiment. While the first trigger was foreign funds, allured by the highly beaten-down Chinese stocks, began to pull out to park their monies in Chinese stocks after Beijing announced a big stimulus but never implemented fully. Though since then many brokerages said China was still not a good investing story given the deep-rooted structural issues plaguing the world’s second largest market and economy, foreigners continued to sell after Trump stormed back to the White House, leading to a rally in the US stocks and the greenbacks. Another reason is the massive slump in the domestic growth story, and a bleeding rupee which had sniffed at 88 early February losing almost 4.5% since October only added to the pains, along with the falling earnings of India Inc.
Foreign Funds Dumping
The bloodbath began on October 3, 2024 when foreign investors suddenly found more value in the beaten down Chinese stocks and began dumping their investments here like hot coal. The dumping spree is still continuing and they have so far taken out a whopping Rs 3.6 trillion from the market, of which Rs 1.1 trillion since January alone.
This is despite brokerages like the Hong Kong-based CLSA re-rating India early November with a buy call. But foreigners continued to sell after Trump stormed back to the White House. And many are of the opinion that they may continue to do so as India is still over-bought. The Nifty’s 12-month forward price-to-earnings ratio is still around 20, which is in line with its 10-year average, but is among the highest in Asia.
Growth Slump
While the economy was talked up to a good start in the beginning with the Reserve Bank forecasting over 7.2% uptick in FY25, it just lost the momentum in the first quarter itself with GDP slowing to a 6.6% (revised estimate from 6.4%) which was correctly attributed to the missing government capex due to the hustings. But the biggest negative was the slump in Q2 when it slumped to a seven quarter low of 5.4% and the Q3 printing in at 6.2% turned out to be a non-event for the markets.
Falling Corporate Earnings
The earnings growth of Nifty companies was 5% in the December quarter, a third straight quarter of single-digit increases after two years of double-digit jumps, largely due to weakening urban demand amid high prices and modest income growth with salary hikes being not even negligible. With corporate earnings missing expectations and the rising uncertainty over US tariffs, markets' returns across the board may moderate further, according to Kotak Mutual Fund.
Lack of Trust in Markets after Sebi’s Loss of Mandate
An analyst who does not want to be named said the deepening pain the market also has something to do with the loss of Sebi’s regulatory mandate under the just retired chief Madabhi Puri Buch whose partial treatment of some companies associated with her husband as also her own inability get Adani group companies to follow rule book have dented the investors’ faith in the institution that it could behave objectively and impartially.
What Investors Should Do?
The US tariff tantrums have only added to the already mounting pressure on the market due to domestic issues, like falling growth, slumping consumer demand among others according to a note by Asit C Mehta Intermediates.
The issue is more to do with a crisis of confidence and not data driven per se and this is this the main reason for the current panic trends, says another analyst, adding given these, even if there is a pull back this week, investors should be cautious as there is no guarantee that the recovery will be strong enough.
At the same there are market-men who say its time investors get back to the highly beaten down blue-chips provided they have a 12-24 months patience. Yet the overriding word is caution.