Stock market carnage: Sensex and Nifty fall by almost 2 percent, check key factors behind Dalal Street panic

The stock market witnessed a significant decline on Monday with both the Nifty and Sensex resuming their downward trajectory after a week of relative stability.

Both benchmark indices fell as much as 2%, leading to huge losses for investors. At 12:57 pm, the S&P BSE Sensex fell 1,303.19 points to 78,420.93, while the NSE Nifty50 was down 437.15 points to trade at 23,867.20.

Most other broader market indices also fell sharply during the session as volatility rose sharply. Smallcap and midcap stocks also fell significantly, signaling broad-based panic selling on Dalal Street.

The sharp downturn has raised concerns among investors, with three major factors contributing to the current state of the market.

FII SELLING SEIZURE SENTIMENT

The stock market is done significantly affected by the heavy selling activities of foreign institutional investors. As they look to shift their investments, expectations of a stimulus package from China have prompted many FIIs to shift their funds from India.

This shift has fueled concerns about capital outflows, which typically put downward pressure on stock prices.

Santosh Meena, head of research at Swastika Investmart Ltd, said: “Nifty and Sensex have resumed their downtrend after a week of consolidation, largely due to heavy selling by financial institutions.”

“The expectation of a new stimulus package from China is driving an outflow of funds from India to China, while financial institutions are also making gains ahead of the important upcoming US elections,” Meena added.

PROFIT BOOKING FOR THE US ELECTIONS

In the run-up to the US presidential election, many investors are choosing to book profits in anticipation of the potential market volatility associated with the election.

The profit-booking behavior has increased downward pressure on domestic markets as financial institutions recalibrate their portfolios in anticipation of the outcomes and implications of this election.

DOMESTIC INVESTORS BE CAREFUL

Domestic institutional investors appear to be taking a cautious stance amid these global uncertainties. With FIIs driving the selling momentum, DIIs are reportedly holding back, adding to the lack of buying support in the market. Their absence during this critical phase further exacerbates the downward trend.

“DIIs seem to be on the sidelines amid these major global events,” says Santosh Meena.

He noted that both Nifty and Sensex are nearing their 200-DMAs at around 23,500 and 77,000 respectively, where a temporary low could form.

“Bank Nifty is showing relative resilience, supported by attractive valuations. Amid the current market pullback, investors are encouraged to focus on stocks with reasonable valuations and strong earnings momentum,” he added.

WEAK PROFIT IN Q2

Large company stocks are also experiencing significant earnings forecast downgrades, which is negatively impacting investor sentiment. BPCL saw the steepest cut to its FY25 EPS projections, with a 34.3% rating downgrade after its second-quarter results. Other notable reductions came from IndusInd Bank, UltraTech Cement and Coal India.

Analysts at Motilal Oswal Financial Services (MOFSL) noted that while 34 Nifty stocks posted modest revenue growth of 5% for the second quarter, EBITDA growth was limited to just 1% and net profit growth was stagnant. Domestic earnings concerns have been reinforced by weaker second-quarter performance, with many companies missing PAT and EBITDA estimates.

“The Indian market is facing challenges due to slowing earnings growth. Based on Q2 results, Nifty’s FY25 earnings per share could fall below 10%, making current valuations of 24 times estimated FY25 earnings difficult to justify. FPIs could continue their selling spree in this tough earnings environment, which could limit any potential market rally,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

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