Markets log worst 1-day fall in 3 weeks amid FPI exit; Sensex falls 931 pts

Weak earnings also weigh on sentiment; Sensex, Nifty down 7% from peak

Benchmarks indices logged their biggest single-day decline in three weeks as sustained selling from overseas investors and earnings disappointment weighed on investment sentiment.

The Sensex ended the session at 80,221, down 931 points or 1.2 per cent. The Nifty 50 index fell 309 points, or 1.3 per cent, to close at 24,472. Both indices posted their biggest fall since October 3. The broader Nifty Midcap 100 and Smallcap 100 indices declined by 2.6 and 3.9 per cent, respectively.

Since the all-time highs hit on September 27, the Sensex is now down 6.7 per cent, and the Nifty by 7 per cent. The Nifty Midcap 100 and the Nifty Smallcap 100 are down 8 per cent from their highs. Meanwhile, India’s market capitalisation has dropped by Rs 9.2 trillion from the peak to Rs 444 trillion ($5.3 trillion).

 

The slump comes amid a record pullout by foreign portfolio investors (FPIs). So far this month, they have withdrawn over $10 billion (Rs 82,845 crore) from domestic equities.

A large portion of these funds is seen shifting from India to China, where the government has announced several measures to support the economy and the stock market. Chinese markets trade at a huge discount to India.

The tepid earnings growth posted by large corporates for the September quarter and the uncertain demand outlook projected by some have made the elevated valuations of Indian equities untenable.

Analysts said as long as earnings remain lacklustre and FPI selling continues, a sustained recovery in the market will remain difficult.

“Q2 earnings are showing signs of moderation, which dented the sentiment. We expect pressure to continue in the market driven by result-oriented action. However, investors can follow a dip strategy to accumulate quality stocks," said Siddhartha Khemka, head (research), wealth management, Motilal Oswal Financial Services.

The uncertain outlook for US interest rates has added to investor concerns. Investors have reduced their bets on Fed rate cuts after a US Fed official indicated a preference for a slower pace of rate reductions. The potential impact of a Donald Trump victory, given his promised tax cuts and trade tariffs, is also worrying investors.

Federal Reserve Bank of Kansas City President Jeffrey Schmid prefers a policy cycle where the Fed makes “modest” adjustments to sustain economic growth, stable prices, and full employment. Schmid added that a slower pace of rate reductions would also allow the Fed to find a neutral level where policy neither weighs on nor stimulates the economy. The 10-year US bond yield was trading at 4.2 per cent.

Going forward, the remainder of the earnings season and the trajectory of FPI flows will determine the direction of the markets.

“The outlook suggests further downside, particularly in mid and smallcap spaces. The next major support is around 24,000 on the index front, with potential resistance between 24,700 and 25,000 in case of a rebound. We recommend adjusting trades accordingly and advise against adding to losing positions," said Ajit Mishra, SVP-research of Religare Broking.

The market breadth was weak, with 3,430 stocks declining and only 557 advancing. Barring one, all Sensex stocks declined. Reliance Industries fell 1.8 per cent and was the biggest drag on the Sensex.