Benchmark indices fell sharply in early trade on Monday due to foreign fund outflows and weakness in Asian markets, with Japan’s Nikkei index plummeting nearly 5%. The BSE Sensex tumbled 464.22 points to 85,107.63, while the NSE Nifty dropped 133.85 points to 26,045.10. Major laggards among the Sensex 30 included Tech Mahindra, ICICI Bank, Reliance Industries, and Mahindra & Mahindra. On the upside, Tata Steel, NTPC, and Hindustan Unilever showed gains.
Foreign Institutional Investors (FIIs) offloaded equities worth ₹1,209.10 crore on Friday, contributing to the sell-off. Analyst V K Vijayakumar of Geojit Financial Services indicated that the market may enter a consolidation phase, partly due to China’s stock market rally driven by monetary and fiscal stimulus.
Global cues remain mixed, with U.S. markets closing on a flat note, while Brent crude edged higher, rising 0.71% to $72.49 per barrel, adding to market volatility.
On Monday, Indian benchmark indices saw a sharp decline in early trade, triggered by significant foreign fund outflows and weak sentiments across Asian markets. The BSE Sensex tumbled by 464.22 points, reaching 85,107.63, while the broader NSE Nifty sank by 133.85 points, closing at 26,045.10. The early downturn was largely attributed to concerns about foreign institutional investors (FIIs) pulling out capital, as well as overall volatility in global markets, especially in Asia, where Japan’s Nikkei index fell by almost 5%.
Key Laggards and Gainers
Among the Sensex’s 30 constituents, several prominent companies faced major losses. Tech Mahindra, ICICI Bank, Reliance Industries, Mahindra & Mahindra, Axis Bank, and UltraTech Cement led the decline, reflecting broader concerns around corporate performance and sector-specific challenges. ICICI Bank and Reliance Industries, two of the biggest market movers in India, were especially instrumental in dragging the indices down, as investors opted for a risk-off approach amid global uncertainties.
However, not all companies suffered from this sell-off. Tata Steel, JSW Steel, NTPC, Titan, Hindustan Unilever, and Asian Paints were among the select gainers, suggesting that investors might still have confidence in sectors like steel, utilities, and consumer goods. Tata Steel and JSW Steel, in particular, were buoyed by the improving demand for steel both domestically and globally, while NTPC saw gains likely on expectations of steady energy demand in the near term.
Weakness in Global Markets
Monday’s sharp decline was not isolated to the Indian markets; it mirrored broader weakness across the Asian region. Japan’s benchmark Nikkei 225 index fell by almost 5%, reflecting concerns around slowing economic growth and inflationary pressures. Similarly, Seoul’s Kospi index also traded lower, while Shanghai and Hong Kong bucked the trend slightly by trading in the positive territory.
The global market sentiment has remained fragile, owing to a mix of factors including concerns over interest rate hikes by central banks, geopolitical tensions, and inflationary pressures exacerbated by rising energy prices. In the U.S., markets ended on a mixed note last Friday, with investors still grappling with the possibility of tighter monetary policies by the Federal Reserve, aimed at controlling inflation while balancing the risk of slowing economic growth.
Foreign Fund Outflows Add to Market Pressure
One of the biggest drivers behind Monday’s market performance was the persistent selling pressure from foreign institutional investors (FIIs). According to exchange data, FIIs offloaded equities worth ₹1,209.10 crore on Friday, contributing to the overall negative sentiment in the market. FIIs have been steadily reducing their exposure to Indian equities, owing to a variety of global and domestic factors. Concerns around inflation, potential interest rate hikes, and slowing economic growth globally have driven FIIs to seek safer assets, pulling funds out of emerging markets like India.
Additionally, the U.S. dollar’s strengthening against the Indian rupee has added to the challenges, as foreign investors tend to repatriate their funds when the local currency weakens. A weaker rupee erodes returns on their investments in India when converted back to dollars, making it less attractive for foreign investors to maintain positions in Indian assets.
China’s Outperformance and Its Impact
While global markets, including India, have been struggling, one bright spot has been China’s stock market, particularly the Hang Seng index, which saw a significant rally of about 18% in September. This rally has been largely driven by expectations of a revival in the Chinese economy, following several monetary and fiscal stimulus measures introduced by the Chinese government to boost growth.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented that the outperformance of Chinese stocks has been a significant factor influencing foreign portfolio allocations. Many investors have been rotating out of Indian equities into Chinese assets, given the perceived potential for higher returns in the short term. The surge in the Hang Seng index has also raised hopes of an economic revival in China, which could have broader implications for global markets, including India, given China’s importance in global trade and manufacturing.
However, while this shift in focus toward China has led to outflows from Indian markets, it’s important to note that China’s economic recovery is still subject to various uncertainties, including ongoing trade tensions with the U.S. and internal challenges such as property market instability. The impact of China’s outperformance on Indian markets may be more short-lived if the global economic outlook worsens.
Oil Prices and Inflation Concerns
Another significant factor weighing on investor sentiment is the rise in global oil prices. Brent crude, the international benchmark, climbed by 0.71% to $72.49 a barrel on Monday. Rising oil prices add to inflationary pressures in India, as the country imports a significant portion of its oil needs. Higher crude prices lead to higher transportation costs, which in turn drive up the prices of goods and services across the board.
Inflation concerns are particularly acute in India, where rising food and fuel prices have been squeezing household budgets. The Reserve Bank of India (RBI) has been carefully monitoring inflation, and any sustained rise in oil prices could prompt the central bank to tighten monetary policy further, possibly through interest rate hikes. This, in turn, could have a negative impact on market sentiment, as higher interest rates make borrowing more expensive and can slow down economic growth.
Outlook: Consolidation Ahead?
Amid the current market volatility, many analysts are expecting the Indian stock markets to enter a consolidation phase. Vijayakumar of Geojit Financial Services noted that while the Indian market has been resilient in recent months, especially compared to other global markets, the near-term outlook may see a period of consolidation as investors reassess their positions amid global uncertainties.
The consolidation phase may also be driven by a lack of strong domestic triggers. While India’s economic fundamentals remain relatively strong, with GDP growth projected to remain robust, external factors such as foreign fund outflows, inflationary pressures, and global market volatility are likely to keep investors cautious. Additionally, the corporate earnings season will be closely watched to gauge how companies are managing higher input costs and whether they can maintain profitability in the face of rising inflation.
U.S. Market Influence and Mixed Economic Data
The U.S. markets, which closed on a mixed note last Friday, continue to exert a significant influence on global sentiment. Investors are closely watching the Federal Reserve’s policy decisions, especially regarding interest rates. While inflation has been moderating in the U.S., concerns remain that the Fed could maintain a hawkish stance if economic data, particularly around employment and consumer spending, shows signs of overheating.
At the same time, mixed economic data from the U.S. is creating uncertainty. While job growth remains strong, there are signs that consumer spending may be slowing down, especially as higher interest rates start to impact credit costs. This has led to a cautious approach among global investors, including in India, where concerns about potential spillovers from U.S. monetary policy remain high.
Monday’s sharp fall in Indian benchmark indices underscores the growing challenges facing the market, driven by both global and domestic factors. Foreign fund outflows, weak Asian markets, and rising oil prices are combining to create a challenging environment for investors. While some sectors, such as steel and utilities, are showing resilience, the broader market is likely to experience a period of consolidation as investors navigate the uncertainties around inflation, interest rates, and global economic growth. As global markets remain volatile, particularly in response to U.S. monetary policy and China’s economic trajectory, the Indian markets are expected to remain in a cautious mode in the near term.
