Foreign investors flee, Sensex dips below 80k; Rs 9-lakh cr gone with the wind

The Indian stock market faced a significant selloff on Friday as both benchmark indices, the Sensex and the Nifty, dropped nearly 1 percent. The market's downturn was driven by heavy foreign investor outflows, stretched valuations, disappointing September quarter earnings, and global uncertainties, including the upcoming U.S. elections and escalating tensions in the Middle East.

The Sensex ended 663 points, or 0.83 percent lower, at 79,402, dropping below the 80,000 mark for the first time since mid-August. The Nifty fell 218.60 points, or 0.9 percent, to settle at 24,180.80. Meanwhile, midcap and smallcap indices underperformed, each dropping around 2 percent, which highlighted the broader market's vulnerability. 

The market's fall wiped out nearly ₹9 lakh crore in market capitalisation in a single day, with the total market value of BSE-listed firms plunging to about ₹435 lakh crore from ₹444 lakh crore in the previous session.

Losses for the 5th straight day

This marks the fifth consecutive session of losses for the Nifty, which has shed over 2.5 percent this week alone and now sits 8 percent below its all-time peak of 26,277.35 scaled on September 27. While the October decline reached 6.5 percent, the Nifty remains up by 11 percent year-to-date in 2024 and 26.5 percent over the past year.

Despite the challenges, private banks have maintained stability, showing resilient net interest margins. Experts warned investors to be cautious about high P/E stocks due to earnings downgrades, noting that expensive valuations could lead to further corrections. With foreign institutional investors (FIIs) offloading ₹97,000 crore in October alone, this valuation cooldown as an opportunity for gradual accumulation of high-conviction stocks as the market stabilises.

Technical outlook

Aditya Agarwal of Sanctum Wealth observed that the market continued to face selling pressure, breaking crucial support levels. The Nifty broke below 24,100 in intraday trading, hitting a low of 24,073 before short-covering in the last hour pushed it up to close at 24,180. Mr Agarwal noted that the Nifty’s 24,000 level will serve as strong support due to significant put writing. On the upside, resistance at 24,400 and 24,500 could hinder any near-term rally. He suggested that with most technical indicators in oversold territory, a pullback could be on the horizon, potentially lifting the index toward 24,350 or 24,440 levels.

Vishnu Kant Upadhyay of Master Capital Services observed that Indian benchmark indices experienced a steep fall on Friday, with the Nifty 50 dropping over 300 points and the Sensex slipping around 900 points. The downturn was largely driven by weaker-than-expected quarterly earnings, sustained foreign investor outflows, and a significant breach of the 100-day EMA in both indices. This technical break, which occurred days before, heightened the selloff as short-term traders exited positions. Key oscillators also indicated bearish divergence, hinting at growing technical challenges, with the potential for further price corrections in the near term.

A potential for rebound remains

In summary, while the current environment suggests caution, analysts view this downturn as an opportunity for selective investments. With the Nifty testing critical support levels, the potential for a rebound remains. The prevailing sentiment among experts is that while near-term volatility may persist, long-term investors can leverage this correction to build positions in high-conviction stocks.

(By arrangement with livemint.com)