The re-election of Donald Trump, which has triggered a rush of global capital back to the U.S., combined with a marked deterioration in earnings growth in Q2, has taken the wind out of the Indian stock market. The Nifty 50 index has plummeted over 10 percent from its September high of 26,277.35, entering the so-called correction territory amid persistent selling by foreign portfolio investors.
The frontline index fell 374 points to as low as 23,509.6 points intraday, down 1.6 percent from the previous close. It ended the session at 23,559.05, down 1.4 percent. BSE Sensex fell more than 1,100 points to 77,533.3 at the day's low, before ending at 77,690.95.
Today’s decline marked the Nifty 50’s fifth straight session of losses amid persistent selling pressure from foreign institutional investors (FIIs). The correction reflects investors' growing caution amid rich valuations and macroeconomic uncertainties, with both Nifty and Sensex falling to their respective five-month lows today.
Global, local factors weighing down on Nifty, Sensex
This latest downturn was intensified by sustained foreign investor outflows, disappointing corporate earnings, and rising inflation, according to experts. Since late September, foreign investors have withdrawn approximately $14 billion from Indian equities, reported Reuters.
Adding to the domestic challenges, emerging-market assets globally have been under pressure due to a strengthening dollar, fuelled by expectations that US President-elect Donald Trump’s administration will have strong backing to implement its economic policies.
Bloomberg reported that MSCI’s emerging-market stock index has declined for four straight days, with a loss of $650 billion in market cap. Meanwhile, emerging-market currencies have been undermined by the dollar’s surge to a two-year high.
“Dollar strength has traditionally been bearish for EM equities,” said Mislav Matejka, head of global equity strategy at JPMorgan Chase & Co, in comments to Bloomberg. “Without a more meaningful fiscal stimulus from China, EM could remain a laggard, especially as trade and tariff uncertainty weigh on the region.”
Weak corporate earnings, high inflation drag markets
Corporate earnings in India have also failed to reassure markets, with several companies reporting their weakest quarterly performances in over four years. "Indian markets were priced to perfection and a lacklustre earnings season has added to nervousness among investors and failed to sustain the hype in terms of valuations," said Saurabh Jain, Assistant Vice President of Research of Retail Equities at SMC Global Securities, in the Reuters report.
Adding to the strain, October’s retail inflation reached a 14-month high of 6.21 percent, dampening hopes of an interest rate cut by the Reserve Bank of India in the near future.
Further, with today marking the end of weekly Bank Nifty derivatives contracts, traders are expected to be unwinding positions, possibly weighing on banking stocks.
The Bank Nifty index shed more than 1,250 points, or 2.5 percent, slipping below 50,000 points. Banking heavyweight counter HDFC Bank was down 2.26 percent at Rs 1,679.3; ICICI Bank fell 1.26 percent to Rs 1,254.55; while SBI was down 2.23 percent at Rs 808.25.
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