“India has been underperforming in October with Nifty down 5.7%, when markets in the US and Japan have delivered positive returns and China and Hong Kong have hugely outperformed. Indiaβs underperformance is driven by lofty valuations, relentless FII selling, and concerns over slowing earnings growth. In the near term, this scenario is unlikely to change, reversing the trend decisively, even though mild pullbacks are possible,” said Dr. V K Vijayakumar of Geojit Financial Services.
Given the current geopolitical events and the impending US elections, analysts expect the Sensex and Nifty to deliver modest returns going forward, with large caps outperforming mid and small caps.
1) Worst month since Covid
The Nifty is ending October with a loss of around 6%, marking its worst monthly decline since March 2020, when fears surrounding Covid led to a 23% crash.
As losses deepen in the broader market, the total market capitalization of all stocks listed on the BSE has fallen by Rs 29 lakh crore this month.
Also read | Diwali has never been this bad for Nifty bulls in last 10 years. Time to buy the fear?
2) Worst-ever FII outflow
October has recorded the highest FII outflow from Dalal Street ever, with about $11 billion worth of investments leaving the Indian stock market, surpassing the $7.9 billion in sales seen during the Covid-led market crash in March 2020.When considering the total FII outflow from the secondary market this month, it has already crossed the Rs 1 lakh crore mark. After accounting for inflows in the primary market due to IPOs, the net outflow in INR terms stands at around Rs 96,000 crore.
3) Q2 earnings spoiler
The September quarter earnings season has soured the mood, as stock prices ultimately reflect earnings in the long run. With many companies falling below market expectations, the number of downgrades has outnumbered upgrades.
FY25 will mark the first year of single-digit growth in Nifty earnings over the past five years, following an impressive compounded annual growth rate of over 20% for the previous four years, Dhiraj Relli, MD & CEO, HDFC Securities, told ET Markets.
Current stock prices of many companies have already discounted aggressive growth ahead and any disappointment in the quarterly numbers may lead to severe derating, he said.
4) Worst pre-Diwali month
This Diwali is also going down in record books as the worst pre-Diwali phase for investors in the last 10 years.
Since 2014, there have been only four instances where Nifty has given negative returns one month before Diwali with the average return being 0.84%. The previous worst pre-Diwali phase for Nifty was in 2015 when it fell 4.45%.
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