Markets dip over 10% from record highs on FII exodus, weak Q2 earnings, elevated valuations

New Delhi: Benchmark Sensex and Nifty after smashing many record peaks this year, slipped into a correction mode, with the NSE key gauge falling over 10 per cent from its record high hit in September amid concerns of foreign investors fleeing the domestic market, weak Q2 earnings and stretched valuations.

The BSE benchmark Sensex hit its record peak of 85,978.25 on September 27 this year, and the NSE Nifty also reached a lifetime high of 26,277.35 on the same day. However, markets came under bear attack from October onwards. The BSE benchmark gauge is down a massive 8,397.94 points or 9.76 per cent from its all-time high, and the Nifty has also lost 2,744.65 points or 10.44 per cent from the record.

“Elevated valuations had already raised concerns, but a stimulus package in China prompted a significant shift in FII flows from India to China. This exodus was further fuelled by weak Q2 earnings, while a rise in US bond yields and the dollar index added pressure, extending the FII sell-off. Consequently, the Indian market has seen record FII outflows over the past one and a half months,” Santosh Meena, Head of Research, Swastika Investmart Ltd, said.

Foreign investors pulled out a massive Rs 94,000 crore (around $11.2 billion) from the Indian stock market in October, making it the worst-ever month in terms of outflows, triggered by the elevated valuation of domestic equities and attractive valuations of Chinese stocks.

The outflow came after a nine-month high investment of Rs 57,724 crore in September this year. The biggest disappointments this quarter came from FMCG stocks, where expectations of strong earnings driven by rural recovery and a favourable monsoon were unmet, Meena said. “Instead, the sector faced one of its worst quarters, especially in terms of urban consumption. Another significant setback was seen in microfinance companies, which reported sharp declines in profitability and asset quality, reflecting heightened challenges in this segment,” he added.

In October alone, the BSE benchmark slumped 4,910.72 points or 5.82 per cent, and the Nifty tumbled 1,605.5 points or 6.22 per cent. Benchmark indices are trading lower so far this month also.

Sensex made monthly gains in seven months this year. On a monthly basis, it gave negative returns in January and May. Despite the recent correction, the Sensex is up 5,340.05 points or 7.39 per cent so far this year.

“Several factors have contributed to this correction, with sustained outflows from FIIs playing a central role. “Other contributing factors include weak second-quarter earnings leading to a valuation correction, a significant depreciation of the Indian rupee against the US dollar, a disappointing inflation reading for India, China’s economic stimulus, and a rise in US 10-year bond yields — all of which have collectively pressured Indian equities,” Vishnu Kant Upadhyay, AVP of Research & Advisory at Master Capital Services Ltd, said.