On Monday, Indian investors faced a significant blow as the Indian stock markets shed ₹3.79 trillion in value, marking the largest single-day drop in nearly two months. This sharp decline was driven by heavy selling from foreign portfolio investors (FPIs) and retail clients.
The Nifty index fell 1.41%, closing at 25,810.85, while the Sensex dropped 1.49%, finishing at 84,299.78. This marked the biggest fall for both indices since August 5, when they each lost around 2.7%. The sell-off was primarily concentrated in large-cap stocks within the energy, banking, and automotive sectors.
Major contributors to the Nifty’s decline included Reliance Industries, ICICI Bank, HDFC Bank, Axis Bank, Infosys, and Mahindra & Mahindra. These stocks, with their substantial weight in the index, amplified the fall.
Global Factors Fuel the Slide
A combination of global factors added to the market’s volatility. Investors grew concerned about a potential shift of foreign funds towards China, as recent economic stimuli made the country an attractive alternative. Additionally, rising geopolitical tensions in the Middle East and a stronger Japanese Yen raised fears of increasing crude oil prices, further unsettling markets.
Swarup Mohanty, Vice Chairman & CEO of Mirae Asset Investment Managers (India), commented on the situation, noting that foreign investments might be redirected to China following its recent stimulus measures. This redirection could pull funds away from the Indian market, especially in sectors considered overbought.
Despite the downward trend, domestic institutional investors (DIIs) stepped in to buy ₹6,645.80 crore worth of equities, cushioning the overall impact. Meanwhile, foreign institutional investors (FIIs) sold ₹9,791.93 crore, the largest outflow in four months.
Broader Markets Hold Steady, Experts Remain Optimistic
While the benchmark indices experienced a notable decline, the broader markets remained relatively stable. The Nifty Smallcap 250 inched up by 0.06%, and the Nifty Midcap 150 slipped just 0.2%. This indicates that not all sectors were affected equally.
Despite the sharp pullback, market veterans maintain a positive long-term outlook on India’s growth prospects. “This correction is healthy and expected. It’s part of the natural market rotation from overbought sectors like defense and shipbuilding to healthcare and private banks,” explained Mohanty.
Global Market Impact
India’s market woes came in tandem with declines in other Asian markets. Japan’s Nikkei 225 plunged by 4.8%, South Korea’s Kospi dropped 2.13%, and Taiwan’s Taiex fell by 2.6%. On the other hand, China’s CSI 300 blue-chip index surged 8.48%—its biggest one-day jump in 16 years—following a stimulus package and rate cuts by the government.
Overbought Signals in Key Indian Stock Market
Indian markets have been hovering in overbought territory for some time. The Nifty’s relative strength index (RSI), a key indicator of overbought or oversold conditions, hit a 17-year high of 83.92 on Friday. Although Monday’s correction slightly reduced the RSI to 83.19, the index remains at elevated levels, suggesting more volatility ahead.
Market analyst Jay Vora noted that as long as the Nifty holds above its 20-day simple moving average of 25,479, it’s likely to recover and possibly hit new highs.
Short-Term Volatility in the Derivatives Market
In the derivatives market, Nifty futures expiring on 31 October saw a 6.9% drop in open interest, signaling a bearish sentiment in the short term. Bank Nifty futures also showed bearish signs, with open interest rising alongside a 1.59% fall in the Bank Nifty index.
Despite these signals, experts remain optimistic about the market’s resilience. Dhiraj Sachdev, CIO of Roha Venture, believes that any foreign institutional selling will be absorbed by domestic players, keeping the market fundamentally strong.
Short-Term Pain, Long-Term Gains
While Monday’s market tumble has rattled investors, experts view it as a natural pullback in an otherwise bullish market. With strong domestic buying support and optimistic long-term prospects, India’s stock market is expected to rebound after the current volatility stabilizes. Investors should brace for short-term fluctuations but keep an eye on the broader growth story.
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