Sensex, Nifty: 5 Reasons Why Stock Market Is Falling Today; More Pain Ahead?
On Friday, Sensex and Nifty took a hit, following the downturn in US stock markets. The BSE Sensex closed at 75,352.10, down 383.86 points (0.51%), while the Nifty fell 118 points (0.51%) to 22,795.25. Several factors contributed to the market’s fall:
- US Market Weakness: The decline in US stocks was triggered by surprise increases in US jobless claims and weak commentary from Walmart.
- Rising Foreign Outflows: Strong foreign outflows from India, coupled with increased interest in Chinese equities, have raised concerns over India’s stock market.
- Tariff Fears: The possibility of Trump’s tariffs could push inflation higher in the US and negatively impact the global economy, causing further uncertainty.
- Weak Earnings: Corporate earnings in India have been disappointing, with several companies failing to meet expectations, which has dampened investor sentiment.
- Expensive Valuations: India’s stock market valuations appear expensive, especially in the context of a volatile global environment, making investors cautious.
Sectoral Impact
Key stocks that saw significant declines included M&M (-5.8%), UltraTech Cement, Tata Motors, Power Grid, and ICICI Bank, which dropped up to 2.5%. Other Sensex losers included Adani Ports, Zomato, Sun Pharma, and Maruti Suzuki.
Market Breadth and Investor Sentiment
According to ICICI Securities, the market breadth indicator is showing extreme pessimism, with only 13% of stocks in the Nifty 500 universe above their 50-SMA and 200-SMA. Historically, such extreme readings have led to a slowdown in downward momentum, eventually forming a market bottom. Investors are advised to focus on quality stocks that show strong earnings potential.
Analyst Insights and Short-Term Outlook
- V K Vijayakumar (Geojit Financial Services) suggested the market’s negative reaction stems from concerns over potential tariffs on sectors like autos and pharmaceuticals. He believes this is a short-term trend as the tariff situation evolves.
- FII Selling: Foreign Institutional Investors (FII) are likely to continue selling, particularly due to the resurgence of Chinese stocks, which are seen as undervalued and recovering strongly. This could put additional pressure on large-cap stocks.
Earnings Disappointments
The earnings season was disappointing, with a decline in the beat-to-miss ratio to 0.6 times in Q3 from 0.7 times in Q2. Small-caps saw a higher percentage of misses at 63%, while large-caps and mid-caps had 32% and 41% misses, respectively. Key sectors like auto, energy, and consumer discretionary struggled with more misses compared to banks and IT, which performed better.
Global Market Fatigue
According to Nomura India, the recent selloff in Indian stocks mirrors trends in regional markets like Indonesia and Thailand. After a strong run, expectations were high, but both economic and earnings growth have fallen short, leading to a drop in Nifty valuations. The one-year forward earnings multiple for the Nifty has decreased to 19 times, compared to 21.3 times at its peak in September 2024.
Conclusion: What’s Next for the Market?
With concerns over global inflation, earnings misses, and high valuations, the stock market faces continued pressure. However, short-term selling could present opportunities for long-term investors, particularly in quality stocks that demonstrate strong fundamentals.
