Relentless FII selling, earnings setbacks and more: Factors behind the selloff on Dalal Street

The midcap index has entered the correction zone, falling over 10% from recent highs

The selling pressure on Dalal Street intensified in Friday's session, sending benchmark indices further lower by over a percent in a week that has seen a near 3% cut on the Nifty 50 index, and a deeper gash for the broader markets.

The Sensex was down 687 points or 0.85 percent at 79,370, and the Nifty was down 261 points or 1.07 percent at 24,138.25 shortly after noon, with no respite in sight, a day after weekly expiry. Today marked the fifth consecutive session of declines for the benchmarks, driven by lacklustre earnings, persistent FII outflows, and US election uncertainty.

Several factors are weighing heavy on the market sentiment, including relentless foreign institutional investor (FII) selling, disappointing Q2 earnings and global uncertainties, precipitating an extended selloff.

Red October: Foreign institutional investors (FIIs) continued to sell their positions, dampening market sentiment. On October 24, FIIs offloaded equities worth Rs 5,062 crore, adding to their near Rs 1 lakh crore selling spree in October. The intensity of this selling comes amid heightened tensions in the Middle East, and a shift in EM investment flows towards China after the recent spate of stimulus announcements. Coupled with concerns over urban consumption and demand growth, the FII exit seems to be rattling the stock market and making investors wary of a possible short-term drawdown.

IndusInd Bank Punished: IndusInd Bank saw its stock plummet by almost 20 percent in today’s session, wiping it off the list of India’s top 10 most valued lenders by market capitalisation. The bank reported a steep 40 percent decline in net profit to Rs 1,331 crore for the September 2024 quarter, which led to heavy selling. Higher provisions, subdued growth in its higher-yielding loan portfolio, and declining other income compounded the weak earnings. Leading brokerages have also revised their target price for the stock downward, reflecting concerns over the bank’s near-term growth potential. IndusInd emerged as the biggest loser among both Sensex and Nifty stocks, further exacerbating the day’s market sell-off.

Race for the White House: US treasury yields rose this week, leading to a risk-off sentiment in Asia, as investors trimmed expectations over US Fed rate cuts. US economic data due next week on monthly payrolls may give clarity to investors, while the US presidential race seems to be showing a closer than expected fight between Donald Trump and Kamala Harris in swing states. As investors brace for potential volatility ahead of US elections, Indian markets are feeling the ripple effects.

FMCG Under Pressure: The defensively positioned FMCG sector, typically a safe haven during market turbulence, is also feeling the strain. The sector has grappled with rising input costs, particularly in agricultural commodities, which has pressured profit margins.

Experts have adviced investors against too much concentration in smallcap names, instead suggesting to balance the portfolio.

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