The Indian stock market has witnessed a major drop since the Sensex reached an all-time high of 85,978.84 on September 27, 2024, decreasing by 10,000 points, or 11.79%, in the last four months.
Reports claimed that large-cap stocks faced the greatest decline, as the NSE Large-Cap Index fell by 13.27%. The Nifty fell by 12.38%, and mid and small-cap stocks experienced a notable drop, as the Mid-Cap Index decreased by 12.85% and the Small-Cap Index declined by 9.87%.
The decline has been influenced by multiple elements, such as decelerating GDP growth, rising food inflation, increasing US bond yields, and a more robust dollar.
Even, Foreign Portfolio Investors (FPIs) have reduced their involvement, divesting Rs 94,017 crore in October and Rs 51,748 crore in January.
Even with the market downturn, equity funds experienced a 14.5% rise in inflows in December; however, mutual fund investors such as software engineer Jacob Cyriac have encountered major losses, with certain schemes witnessing a 21% decrease in returns. Financial analysts have warned that although large-cap stocks seem to have largely adjusted, mid-cap and small-cap stocks could face further drops.
With India’s GDP growth reaching a seven-quarter low of 5.4% and corporates not recording profits on expected lines, 2025 could witness lukewarm results, experts have cautioned.
While foreign investor sentiment stays wary, domestic capital persists in offering support. Yet the continued selling by FPIs presents a potential risk.
The impact of the US presidential election, increasing commodity prices, and global economic instability has heightened the sell-off.
The Donald Trump factor is perceived to have contributed to the vagaries of the market. Analysts hold the view that his victory in the US elections had led to a rise in the US dollar, and that the 10-year US bond yield rose by 100 basis points after the elections.
Experts say that with the 10-year US bond yielding 4.7%, it made little sense for foreign investors to invest in emerging markets, especially when valuations were high. This, experts indicate, triggered a wave of relentless selling by FPIs.
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