REALITY CHECK

INDIAN STOCK MARKETS PLUNGED BEGINNING OCTOBER FOR A HOST OF REASONS, INCLUDING A FALL IN FII OWNERSHIP. HOW DEEP WILL THE CORRECTION BE?

- RAHUL OBEROI

EVERYTHING WAS FINE on Dalal Street until September. But the joy was short-lived. Come October, a pall of gloom seems to have pushed investors into a plunge pool of uncertainty. The benchmark indices-NSE Nifty50 and BSE Sensex-entered into a correction phase with a sharp 10% decline as of November 14 from their peaks. They had touched their record highs of 26,277 and 85,978, respectively, on September 27.

Meanwhile, the Nifty Midcap 150 and Nifty Smallcap 250 fell 10.70% and 10%, respectively, from their all-time highs scaled in late September. Earlier, the Midcap 150 index and Nifty Smallcap 250 index had rallied 435% and 514%, respectively, between March 2020 and September 2024.

A fall of 10% is termed a 'correction', while a 20% drop from the highs is called a 'bear' market.

The sell-off since October has been triggered by multiple factors, including a tepid earnings season, relentless selling by foreign institutional investors (FIIS), ongoing geopolitical tensions, and a weakening rupee.

As fear and caution replace the earlier excitement, market experts recommend a shift in strategy, advising investors to focus on large-cap stocks and adopt a cautious approach.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, cleared some of the uncertainties. "I don't think we'll see a major bear market purely from an earnings perspective. In the first half of FY25, earnings per share (EPS) on the Nifty were around 550, with expectations for the full year at about 1,050," he said. Shah expects the second half of FY25 to be stronger, making the target achievable.

"However, reaching an EPS of ₹1,250 for FY26 appears challenging, and we may fall short. The economy and corporate profitability are fundamentally strong, so a significant market downturn seems unlikely unless FIIs sell aggressively," Shah said in an interaction with BTTV.