Sensex crashes 1,100 points today: What’s behind the bloodbath on Dalal Street

Domestic stock markets took a sharp dive on Monday, with the S&P BSE Sensex plummeting over 1,100 points in morning trade, driven by sustained foreign outflows and growing global and domestic economic concerns.

The S&P BSE Sensex dropped 1,121.16 points to trade at 78,602.96, while the NSE Nifty50 fell 357.80 points to 23,946.55 at around 10:30 am. The rout extended across broader market indices, with midcap and smallcap stocks experiencing steep losses amid mounting investor concerns.

FOREIGN OUTFLOWS CONTINUE

Data showed foreign portfolio investors (FPIs) sold equities worth a record-breaking Rs 1,13,858 crore in October, the highest monthly outflow on record, contributing significantly to the market’s recent downturn.

The relentless FPI sell-off, driven by concerns over India’s high valuations and weaker earnings outlook, has led to an approximate 8% decline in benchmark indices from their recent peaks.

“The Indian market is facing headwinds from decelerating earnings growth. Nifty’s FY25 EPS growth, as indicated by Q2 results, may dip below 10%, making current valuations of 24 times estimated FY25 earnings difficult to sustain. FPIs may continue to sell in this difficult earnings growth environment, limiting any market rally,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Q2 EARNINGS DISAPPOINTMENT

Major Nifty stocks are seeing notable downgrades in their earnings forecasts, impacting investor sentiment. BPCL reported the largest cut in its FY25 EPS projections, with a 34.3% downgrade since Q2 results, followed by IndusInd Bank, UltraTech Cement, and Coal India.

Analysts at Motilal Oswal Financial Services (MOFSL) highlighted that while 34 Nifty stocks reported a modest 5% growth in sales for Q2, EBITDA growth was only 1%, and net profit growth stagnated.

Additionally, concerns over domestic earnings were exacerbated by weaker Q2 performance, with a significant number of companies missing PAT and EBITDA estimates.

This trend has triggered increased caution among investors as they question the sustainability of valuations amidst falling corporate growth projections.

US PRESIDENTIAL ELECTION JITTERS

Global factors, particularly the upcoming U.S. presidential election on November 5, have added to the volatility. Markets worldwide are on edge, with uncertainties surrounding the election outcome. Analysts suggest that a Trump win could trigger a temporary rally, though its sustainability remains uncertain, while a Democratic victory could lead to further near-term market corrections.

Emkay Global stated that a 5% correction in Indian markets, sparked by a Democratic sweep, could present a buying opportunity, though the medium-term outlook for India remains stable under either outcome.

Adding to the strain, oil prices surged 2% on Monday to $74 a barrel as OPEC+ deferred its planned production increase to ease supply concerns amid escalating tensions in the Middle East, particularly between Israel and Iran. This spike in crude prices has fueled fears of rising import costs for India, a major energy importer, which could exacerbate inflationary pressures domestically.

The rupee has also come under pressure, trading close to its record low of 84.1 against the dollar. A weakening rupee may drive further FPI outflows as returns on investments diminish, impacting the stock market further. Analysts are cautious as the rupee’s depreciation could place additional strain on India’s foreign exchange reserves, especially in the face of rising energy import costs.

WHAT’S NEXT?

Looking ahead, analysts believe India’s market faces an uncertain path. Emkay Global suggests that India’s investment strategy may need to adapt to the imminent period of higher inflation and growth variability globally, despite structural growth advantages relative to other emerging markets.

However, for investors, “remaining invested in fairly valued largecaps is the safer option during this volatile phase,” advised Dr. Vijayakumar.

While the market may face near-term turbulence due to global and domestic factors, long-term investors are watching key structural trends in the Indian economy.