Sensex, Nifty: 5 reasons why stock market is falling today

Benchmark indices Sensex and Nifty wiped out early gains and took a beating, taking their losing run to the sixth trading session on Monday, as investors fear Rs 27,142 crore FPI outflows in just a few sessions of October could be a harbinger of a bigger selloff ahead, as investors globally chase battered Chinese stocks, giving domestic equities, especially midcap and smallcap shares, a reality check.

The looming Israeli retaliation against Iran has flared up geopolitical tensions, with the Brent crude oil inching closer to the $80 a barrel-mark, which is negative for oil importer India.  The exit poll results for Haryana and J&K pointed towards losses for the ruling BJP. Add to that is the fact that the India Inc is not projected to report healthy earnings this quarter. These factors are all weighing in on the market. The market is ignoring the positive economic data coming from the US for now.

FPI ouflows

The seven-day National Day holidays in China ends today. The Chinese mainland indices have jumped 23-26 per cent in the past one month. With Chinese shares resuming trade from tomorrow, there are fears that India may see heightened foreign selling. 

"In a sudden U-turn in FII strategy, FIIs turned massive sellers in the Indian market in October. The selling has been mainly triggered by the outperformance of Chinese stocks. The Hang Seng index shot up by 26 per cent in the last one month and this bullishness is expected to continue since valuations of Chinese stocks are very low and the Chinese economy is expected to do well in response to the monetary and fiscal stimulus being implemented by the Chinese authorities," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. 

MOFSL said the monetary stimulus unleashed by China has sparked a wave of tactical FII outflows from India. Corporate earnings, after four consecutive years of healthy double-digit growth, are moderating due to pressures from commodities and fading tailwinds from BFSI asset quality improvements, it said.

India valuations

At present, Nifty is trading at 21.5 times its one-year forward earnings, which is above its historical average of 20.4 times. Against this, the MSCI China gauge is still trading at 10.8 times forward earnings, below its five-year average of 11.7 times. Besides, the valuations of domestic midcap and smallcap indices are at a premium of 59 per cent and 12 per cent to Nifty-50, respectively.

State elections

The outcomes of the recent state elections in Haryana and Jammu & Kashmir, while not a needle mover, may keep the markets on edge, as exit polls predicted losses for the BJP in both Haryana and Jammu & Kashmir, MOFSL in its latest strategy note said. 

In Haryana, the Congress is projected to win a full majority with 50-58 seats in the 90-member assembly. This would be against a tally of 31 seats in the 2019 polls. The ruling BJP, which is looking for a hat-trick of wins in the state, is seen getting 20-28 seats, a drop from 40 seats in 2019, the CVoter exit poll suggested. 

In Jammu and Kashmir, the Congress-National Conference alliance is anticipated to win 40-48 out of 90 assembly seats. The BJP is projected to win 27-32 seats and Mehbooba Mufti-led People's Democratic Party (PDP) may get 6-12 seats. Other parties and Independent candidates could win 6-11 seats.

 Q2 results 

September quarter results will start pouring in this week. Kotak Institutional Equities expects Q2FY25 net profits for the BSE-30 index constituents to increase 5.3 per cent YoY and 2.7 per cent QoQ, and of the Nifty index to grow 3.7 per cent YoY and 2.5 per cent QoQ.

"We estimate ‘EPS’ of the BSE-30 Index at Rs3,448 for FY2025 and Rs4,039 for FY2026 and of the Nifty-50 index at Rs1,063 for FY2025 and Rs1,234 for FY2026," it said.

For the September quarter, MOFSL said earnings for Nifty would grow 2 per cent YoY. Excluding global commodities Nifty earnings is likely to grow at 10 per cent YoY.  For Nifty, excluding financials, margin is likely to contract 40 bps YoY to 20 per cent during the quarter.

Geopolitical concerns, oil prices
Meanwhile, the Iranian oil minister Mohsen Paknejad said he was not worried amid the escalating conflict in the region. There are concerns were tit-for-tat escalation in the West Asia could further fuel rally in oil prices. On Monday, Brent futures for December delivery were trading 0.64 per cent higher at $78.59 as barrel level.