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Sensex, Nifty Fall Up To 13 Per Cent From Record High In 4 Months - Know What Investors Can Do

Exactly four months after the iconic date of September 27, Indian markets have pared the gains and are trading significantly lower compared to their all-time high. Here’s a look at the various factors behind the bear run and how investors should navigate the challenging market conditions

The year 2024 was a stellar one for Indian markets as benchmark indices Nifty 50 and Sensex touched record highs. On September 27 the 30-share Sensex touched an all-time high at 85,978.25 levels. The Nifty 50 index also hit a record high in 2024 and breached the 26,000 mark for the first time, reaching the 26,277.35 level.

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Exactly four months after the iconic date of September 27, Indian markets have pared the gains and are trading significantly lower compared to their all-time high. As of January 27, the Sensex closed at 75,366.17 down by 10,612.08 points or 12 per cent compared to the record high achieved four months ago. On the other hand, the Nifty50 fell 3448.2 points or 13.12 per cent to 22,829.15 levels compared to the record high seen earlier in 2024. However the markets posted a marginal recovery as Nifty closed in the green at 22,957.25 up by 128.1 points or 0.56 per cent and the Sensex closed at 75,901.41, up by 535.24 points or 0.71 per cent.

What Caused The 10,000-Point Decline

Pranit Arora the founder and CEO of Univest Stock Broking Private Ltd. told Outlook Money that the slowdown in GDP growth, and weak corporate earnings season have contributed to the near 10,000 point decline the Sensex has seen.

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“India's economic slowdown has been a key driver behind the fall in Sensex, with GDP growth slowing to 5.4 per cent in the September quarter, largely due to reduced government spending and weaker private sector investment. Weak corporate earnings have further amplified concerns about the strength of the economic recovery,” Arora said.

Arora added that potential U.S. tariff announcements and the depreciation of the Indian rupee against the US dollar have also contributed to the decline. Notably, the Indian rupee hit a historical low as it traded at Rs 86.6 per dollar on January 13.

“On the global front, uncertainties such as potential U.S. tariff announcements have heightened market volatility. The depreciation of the rupee to record lows against the U.S. dollar has further dampened investor confidence,” Arora said.

MidCap and SmallCap Indices Also Affected

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Amid a bear-run in the broader market, midcap and smallcap stocks were also not left unaffected. The Nifty MidCap 100 index which traded at 60,381.15 levels on September 27 fell 14.21 per cent or 8,585.25 points in four months to sink to 51,795.9 levels. On the other hand, the Nifty 100 SmallCap index which traded at 19,242 levels four months ago declined 15.26 per cent or 2,937.75 points to close at 16,304.25 on January 27.

Arora said that going forward small-cap and mid-cap stocks hold growth potential, however, valuations in some small and mid-cap stocks are still elevated. He added that this can lead to further downside for companies with weak fundamentals.

“Small-cap and mid-cap stocks hold growth potential but come with notable challenges that warrant a balanced and cautious approach. Valuations in certain small and mid-cap stocks remain elevated despite the recent correction, which could lead to further downside for companies with weak fundamentals or speculative business models,” Arora said.

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Relentless FII Selloff And Trump Factor

Foreign Institutional Investors turned net buyers in September as Indian indices reached record highs. However, relentless selling has continued in the months following September as FII net sales stood at Rs 1,14,445.89 crore, Rs 45,974.12 crore and Rs 16,982.48 crore for the months of October, November and December respectively. So far FIIs have remained net sellers in January as well, as of January 27 FIIs sold shares worth Rs 74,095.6 crore.

Arora said that Donald Trump’s return as US President has also increased economic uncertainty which in turn has led to volatility. He added that FIIs have pulled funds from Indian equities to seek safer returns amid the volatility, redirecting investment from Indian equities to US assets.

“Donald Trump's return may have contributed to the decline in Indian markets by increasing economic uncertainty. Speculation about his trade policies, such as potential tariffs and protectionist measures, has created volatility. Foreign institutional investors have pulled substantial funds from Indian equities, seeking safer returns in U.S. assets such as bonds and treasuries,” Arora said.

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How Can Investors Navigate The Plunge

Arora said that the outlook for 2025 is ‘cautiously optimistic’. He added that sectors such as banking, infrastructure, and consumption offer promising growth prospects. He added that he the second half of the year may see stronger performance.

“The outlook for 2025 is cautiously optimistic, as the recent market correction presents opportunities for FIIs and long-term investors to capitalize on India’s growing economy. Sectors like banking, infrastructure, and consumption, driven by structural reforms and growing government initiatives, offer promising growth prospects. The second half of the year may see stronger performance, as global uncertainties like interest rate hikes begin to ease, potentially boosting market sentiment and earnings visibility,” Arora told Outlook Money.

Arora advised investors to focus on staying disciplined and investing from a long-term perspective. He added that historically markets recover over time and reward those who stay invested.

“Amidst the ongoing market volatility and correction, investors should focus on staying disciplined and maintaining a long-term perspective. It’s important not to panic, as historical data shows that markets recover over time, often rewarding those who stay invested. Instead of reacting emotionally, view this as an opportunity to buy quality stocks or mutual funds at more reasonable valuations,” Arora noted.

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