Sensex, Nifty enter corrective phase; Rs 50L cr mcap wiped out; what's next for D-St?

Indian benchmark indices have entered the correction zone as the Nifty50 index and BSE Sensex have corrected nearly 10 per cent from their respective 52-week high. An index or a stock is said to be in the corrective phase, when it falls 10 per cent from its 52-week highs.

NSE's Nifty tumbled nearly 325 points on Wednesday, hitting lows at 23,559.20, which is just 10 points away from its correction level at 23,649. The index had hit its 52-week high at 26,277.35 in September 2024. Similarly, Sensex has fallen 9.7 per cent from its 52-week high at 85978.25. The BSE barometer tumbled another 1,015 points to 77,659.65 during the day.

According to market participants, consistent FIIs selling, weak Q2 numbers from India Inc, Stimulus package in China, Geopolitical concerns, weak economic data and falling Indian currency is denting the sentiments for the equity market at large. Despite positive SIP flows, there are no signs of recovery in the Indian markets.

Nifty has experienced its first significant correction in terms of both time and price since March 2023. This sell-off was sparked by China’s new stimulus package, which has diverted FII flows from India to China, said Santosh Meena, Head of Research, Swastika Investmart.

"Weaker-than-expected Q2 earnings from Indian companies, particularly in the consumption sector, have further intensified FII selling, leading to record outflows from Indian equities over the past month and a half. Nifty is now trading near its 200-DMA and is heavily oversold, suggesting a potential temporary bottom around the 23,500 level," he said.

Nomura India said Donald Trump’s election victory and an almost certain Red sweep significantly changed its macro-outlook. "We now see a rebound of US inflation in 2025, fueled by broad-based tariffs.
 

The correction reflects investors' growing caution amid rich valuations and macroeconomic uncertainties, with both Nifty and Sensex falling to their respective five-month lows today, said Vikram Kasat at Head - Advisory at Prabhudas Lilladher. This latest downturn was intensified by sustained foreign investor outflows, disappointing corporate earnings, and rising inflation, he said.
 

"Since late September, foreign investors have withdrawn approximately $14 billion from Indian equities  Further, with today marking the end of weekly Bank Nifty derivatives contracts, traders are expected to be unwinding positions, possibly weighing on banking stocks," he added.

The pain in broader markets is severe with select stocks entering into bear grip. Ignoring the steeper correction in the specific stocks, BSE midcap index is down more than 11 per cent from its 52-week high, while the BSE smallcap index is officially into the bear grip as well.

This steep correction has wiped out a notional wealth of up to Rs 50 lakh crore from investors kitty. The total market capitalization of all BSE listed companies has fallen to 429.26 lakh crore on Wednesday, November 13 from Rs 479.10 lakh crore on September 27.

Bears are dominating Dalal Street, with a pessimistic outlook driven by rising US bond yields amid inflation concerns following Donald Trump's 2024 election win, said Prashanth Tapse, Senior VP (Research), Mehta Equities.

"Fears of Trump’s tariff plans, especially on China, are weighing on emerging markets like India. Despite record Mutual Fund SIP inflows and falling oil prices, Nifty and Bank Nifty remain bearish. Traders await key US inflation data and Fed Chair Powell’s speech," he said.

From the emerging market perspective, the rise in the dollar index and the sharp spike in the US 10-year bond yield are causes of concern, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services. High yields in US bonds will facilitate more outflows from emerging markets to the US. This will continue to be a headwind for India, he said.

"Investors should be cautious in investing in sectors like cement, metals and petroleum refining which are facing growth slowdown. Safety is sectors like banking, new age digital companies, hotels, pharma and IT where growth prospects are good," Vijaykumar added.