Sensex and Nifty fall sharply on inflation and foreign fund exodus, marking multi-month lows with five-day losing streak

Indian stock markets continued their downward trend, slumping for the fifth straight day and reaching multi-month lows. Both the Sensex and Nifty faced significant losses on November 13, 2024, driven by a combination of weak corporate earnings, rising domestic inflation, and sustained foreign fund outflows.

By the end of the day, the BSE benchmark Sensex had fallen by 984 points, or 1.25%, closing at 77,691 points. Similarly, the NSE Nifty tumbled 324 points, or 1.36%, to settle at 23,559 points. All sectoral indices finished in the red, reflecting the broad-based sell-off across the market.

Factors behind the slump

Several factors contributed to the slump in Indian stocks. ICRA Analytics explained, "Indian equity markets slipped after opening in positive territory due to a sell-off across the sectors amid a rise in the dollar index and relentless foreign outflows." In addition to this, India's retail inflation surged to 6.21% in October, breaching the Reserve Bank of India's 6% upper tolerance limit, primarily due to rising food prices.

Foreign Portfolio Investors (FPIs) have been pulling out of Indian equities, further contributing to the market's woes. In November alone, FPIs have sold stocks worth Rs 23,911 crore, and in October, they offloaded a record Rs 94,017 crore in stocks, according to data from the National Securities Depository Limited (NSDL).

Expert insights on the decline

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that the political outcome in the US has added an element of volatility to global markets, which is affecting investor sentiment in India as well. He advised caution for investors, especially in sectors like cement, metals, and petroleum refining, which are facing a slowdown. On the other hand, he sees better prospects in banking, digital companies, hotels, pharmaceuticals, and IT sectors.

"The correction reflects investors' growing caution amid rich valuations and macroeconomic uncertainties," said Vikram Kasat, Head of Advisory at PL Capital. He noted that the decline in both the Nifty and Sensex to five-month lows reflects these concerns.

Inflation and foreign fund outflows

Inflation remains a key concern for the Indian economy, with October's retail inflation at a 14-month high. The increase in inflation has raised questions about future interest rates and the overall economic outlook. Foreign fund outflows have compounded the market's struggles, as investors grow wary of the country's economic outlook. On November 12, Foreign Institutional Investors (FIIs) sold equities worth Rs 3,024 crore, further dampening market sentiment.

In the midst of this, the rupee saw slight appreciation against the US dollar, rising by 1 paisa to close at 84.38. However, analysts expect the rupee may face further pressure in the near term, with the USD/INR pair possibly reaching Rs 85, as noted by Praveen Singh, Associate VP at Sharekhan by BNP Paribas.

Global market impact

The downturn in Indian stocks mirrors trends seen in other markets. Asian markets like Seoul, Tokyo, and Hong Kong closed lower, while Shanghai managed to end the day in positive territory. European markets, however, were trading higher, offering some relief to global sentiment. Meanwhile, the US markets closed in the negative territory on November 12.

Despite the gloomy performance, analysts remain hopeful about certain sectors in India. While market volatility continues, many expect the Indian economy to bounce back, especially if inflation stabilises and foreign fund flows improve. For now, investors will likely be closely monitoring domestic factors, including inflation trends and the final phase of the Q2 earnings season.

As the Indian stock market grapples with these challenges, it’s clear that investors will need to remain cautious and keep a close eye on both global and domestic economic developments.

(With inputs from agencies)