October served as a wake-up call for many investors, underscoring that equity markets are rarely a one-way street. After Indian stock markets hit record highs in August and September—with the BSE Sensex crossing 85,000 and the Nifty 50 touching 26,000—October saw a significant correction. The month closed with the Nifty and Sensex struggling to maintain momentum, following a sharp 1.5% drop on the last trading day of September, and volatility continued throughout October. Across all trading sessions, the market closed in the red on nearly 67% of the days.
Key Factors Driving October Volatility and Future Projections
Heavy foreign institutional investor (FII) selling, combined with underwhelming Q2 FY25 earnings, drove notable market fluctuations. Elevated valuations also triggered profit-booking among FIIs, leading to broader market declines.
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FII Sell-Off and DII Resilience: The Power of Domestic Investment
In October, FIIs withdrew over ₹1,08,000 crore, while domestic institutional investors (DIIs) purchased approximately ₹1,04,000 crore, signaling contrasting investor sentiments. FIIs have pulled ₹2,35,400 crore from the Indian market so far this year, while DIIs have added over ₹4,45,000 crore, marking unprecedented monthly highs for both FIIs and DIIs since April 2007. Retail participation remains robust, with SIP contributions reaching ₹1,91,221 crore by September, underscoring the growing influence of domestic investors as a stabilizing force in the Indian equity market.
Rising Geopolitical Tensions in the Middle East
The ongoing conflict between Israel and Iran has heightened concerns about disruptions to global oil supplies, potentially adding inflationary pressures to India’s already challenging economic environment. This geopolitical instability has prompted a shift towards safe-haven assets like gold and the U.S. dollar, impacting Indian equities.
Mixed Earnings in Q2 FY25
Corporate earnings for Q2 showed mixed performance, with sectors experiencing uneven growth due to global uncertainties and domestic inflation pressures. While some companies exceeded expectations, broader revenue growth for India Inc. slowed to around 5-7 percent year-on-year—the slowest pace in four years—creating a valuation-growth mismatch that has intensified investor caution.
Key Global Event Ahead: The U.S. Presidential Election
The upcoming U.S. presidential election could influence global financial markets, including India’s, through potential shifts in trade, technology, and foreign policy. The indirect effects on India’s economy and markets may shape investor sentiment and sectoral impacts in the coming months.
Elevated Valuations in Focus
The MSCI India Index is currently trading at 24 times its projected earnings for the coming year, levels previously seen in 2021 and 2007—both of which were followed by market corrections in price or time or both. Additionally, Indian equity markets now hold a valuation premium of around 70% compared to the long-term average of 55% against their emerging market peers.
Nifty 50 Outlook: Testing Resistance and Support Levels
The Nifty 50 remains range-bound after its recent dip, facing strong resistance at the 24,500 mark. Short-term optimism is tempered by global uncertainties, particularly U.S. market volatility. A breakout above 24,500 could spur bullish momentum towards 25,000, while a drop below 24,000 might signal further declines, with potential support near 23,500.
Market Performance in October 2024
As of the October 30 close, the BSE Sensex recorded a decline of 5.17%, while the BSE 100 fell by 6.09%. The BSE 150 Mid Cap and BSE 250 Small Cap indices experienced steeper drops of 6.86% and 5.45%, respectively. This month, both the broader markets and frontline indices have also declined.
Sectoral Movements
This month, all sectors ended in the red. Nifty PSU Bank and Nifty IT managed to hold with only marginal losses, making them the top-performing sectors. In contrast, Nifty Oil, Nifty Auto, and Nifty Energy experienced double-digit declines, marking them as the worst-performing sectors.
Conclusion: Remaining Steady Through Market Volatility
October 2024 was a challenging month for the Indian equity market, characterized by heightened volatility and a broad decline across most sectors. Key drivers behind this downturn included heavy selling by Foreign Institutional Investors (FIIs), mixed corporate earnings results, and geopolitical tensions in the Middle East. While sectors like IT and PSU Banks showed relative resilience, others—such as Auto, Energy, and FMCG—experienced notable declines. Broader market indices, particularly mid- and small-cap stocks, underperformed their large-cap counterparts.Despite these obstacles, domestic investor interest in the Indian market remains strong, as evidenced by the steady growth in Systematic Investment Plans (SIPs). This underscores the market’s long-term potential and reflects investors’ confidence in India’s economic trajectory.Looking ahead, the market’s direction will hinge on several factors: the resolution of geopolitical tensions, the pace of economic recovery, and corporate earnings performance. While short-term volatility may persist, the long-term outlook for the Indian market remains positive. Investors are encouraged to approach the market cautiously, diversify their portfolios, and maintain a long-term perspective.India’s long-term growth potential remains robust, even amidst recent turbulence. Although global challenges and valuation concerns may contribute to market fluctuations, many Indian companies continue to demonstrate resilience and growth. With a measured approach, current uncertainties may eventually give way to renewed market optimism.
By: PR Team
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