October 2024 is shaping up to be a brutal month for Indian markets, particularly for D-Street, as major indices such as the Sensex and Nifty face heavy losses. With Foreign Institutional Investors (FIIs) withdrawing an astonishing ₹82,000 crore from Indian equities, the market’s volatility has surged to new heights. This month could rival the turbulence last seen during the COVID-19 market crash, affecting investors across the board.
Massive Foreign Investor Outflow Hits D-Street
October has turned the tide for D-Street, making it the worst month for Indian markets since the 2020 pandemic-induced crash. Foreign Institutional Investors (FIIs) have been pulling out significant amounts of capital, causing major disruptions. This massive outflow of ₹82,000 crore from Indian equities is compounded by a series of large-scale IPOs and Qualified Institutional Placements (QIPs), which have drained liquidity from the market.
The Sensex’s Unprecedented Drop
According to data from the Bombay Stock Exchange (BSE), the Sensex has tumbled by 5.66% in the last 30 days, surpassing even the declines recorded in June 2022, when it fell by 4.58%. This month’s correction is the steepest since February and March 2020, when the market experienced losses of 6% and 23%, respectively, due to the pandemic.
The total market capitalization of all BSE-listed companies has shrunk by an alarming ₹29 lakh crore in October, exacerbating the pain for investors.
What’s Causing the Crash?
1. Persistent FII Selling
The most significant factor driving the market’s downtrend is relentless selling by FIIs. In October, FIIs have offloaded more shares than any other month in recent history, including during the pandemic. This exodus is attributed to several factors, including a global shift toward “Sell India, Buy China” strategies, where investors expect China’s markets to rebound.
2. Overvaluation of Indian Equities
One of the reasons FIIs are pulling out of India is the perceived overvaluation of Indian stocks. D-Street was trading at inflated valuations, making it more vulnerable to corrections. FIIs appear to be cashing out while valuations are high, looking for more reasonably priced markets elsewhere, such as China.
3. Liquidity Drain from IPOs and QIPs
This month saw several major IPOs, including Hyundai India’s, which took a substantial amount of liquidity out of the market. Additionally, promoter fund-raising through QIP routes has further drained investor wallets, adding pressure on domestic investors.
4. Geopolitical and Macroeconomic Concerns
The global geopolitical climate, including tensions in the Middle East, and uncertainty about the upcoming US elections have kept international investors wary. Many prefer to stay liquid, waiting for a clearer picture before reentering riskier emerging markets like India.
Can Domestic Liquidity Support the Market?
Despite the sharp declines, analysts like Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, argue that a full-blown market crash is unlikely. The primary reason is the strong domestic liquidity that has the potential to cushion the market from further significant declines. However, he emphasizes that a market correction is inevitable due to the sustained FII selling and global uncertainties.
Sensex Performance: How Does It Compare to Previous Crashes?
To provide some historical context, let’s look at the recent market crashes:
- February 2020: Sensex dropped by 6%, marking the start of the COVID-related crash.
- March 2020: The index plummeted by a staggering 23% as the pandemic spread globally.
- June 2022: The market fell by 4.58%, driven by inflation fears and rate hikes.
Now, in October 2024, the Sensex has already lost 5.66%, making it one of the steepest monthly declines since COVID.
| Month | Sensex Fall |
|---|---|
| February 2020 | -6% |
| March 2020 | -23% |
| June 2022 | -4.58% |
| October 2024 | -5.66% |
What Lies Ahead for D-Street?
The road ahead looks uncertain. FIIs may continue to sell off their positions in India as they rebalance their portfolios and invest in other markets. At the same time, Indian markets are still considered overvalued, increasing the likelihood of further corrections.
On the other hand, strong domestic liquidity and India’s long-term growth story remain positive factors. As Dr. Vijayakumar points out, while we may not see a crash on the scale of 2020, continued corrections are likely in the short term.
Key Takeaways for Investors
- Stay Calm, Don’t Panic: While the market is experiencing a downturn, it’s important for investors not to panic. Corrections are a natural part of the stock market.
- Reassess Your Portfolio: Now might be a good time to review your investment portfolio. Consider reallocating assets to sectors with long-term growth potential, such as IT, pharmaceuticals, or infrastructure.
- Keep an Eye on Global Events: Geopolitical and macroeconomic factors will continue to play a big role in shaping the market’s direction. Stay informed and be ready to adjust your strategies.
- Domestic Strength: Domestic liquidity remains strong, which means the Indian market has a buffer against further deep corrections.
Conclusion: October’s Pain, November’s Gain?
October 2024 has turned into a nightmare month for Indian investors, especially those tracking D-Street. With foreign institutional investors pulling out record amounts of capital, the market has experienced a significant correction. However, domestic liquidity and India’s long-term growth potential offer some hope.
While the near-term outlook remains uncertain, investors should take a cautious approach, stay informed, and focus on long-term opportunities. As the market continues to digest these shocks, the hope is that November could bring more stability to D-Street.
Source: Various Media Reports edited by BharatiyaMedia.
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