Indian stock market hits mid-August lows after a 6-day Sensex fall; further declines are probably in store?

Monday’s market conditions led to the Nifty closing 600 points down, the Sensex below 24,800, and the Bank Nifty 980 points lower.Indian stock market hits mid-August lows after a 6-day Sensex fall; further declines are probably in store?

Indian stocks are under pressure as a result of growing strains between Israel and Iran and changes in international portfolio investor behavior. Benchmark indexes Nifty 50 and Sensex fell today for the sixth straight trading session.

The market is becoming more concerned as investors consider the effects of ongoing geopolitical tensions between Iran and Israel and the ongoing selling pressure from foreign institutional investors. Indian stocks saw significant selling pressure on Monday, which was the sixth straight trading session of decline.

Both the Sensex and the Nifty 50 finished today’s trading session lower than when they started, falling more than 0.80% and reaching their lowest points since mid-August. The Sensex has dropped about 6%, while the Nifty 50 has corrected by almost 7% from their recent heights.

The current market downturn has probably also been used by investors to book profits, which has increased the downward pressure on market indexes. Last week, both indices had their worst weekly performance in the previous two years.

Global policy developments dominated the past month, starting with the US Fed’s 50-bps reduction in the Fed Funds rate, which marked the start of the much-anticipated easing path. China then announced a plethora of policy measures aimed at reviving its capital markets and economy, which in turn prompted investors to become more interested in riskier assets.

But October has presented additional difficulties for investors, drawing their focus to the growing hostilities in the Middle East, rising crude oil prices, and their possible effects on international commerce. Concern among analysts is growing that these events may have an impact on the main central banks’ decision to decrease interest rates in the next policy meetings.

Investors are likely to modify their tactics in response to these events, pulling out of equities in an effort to reduce portfolio volatility. The recent underperformance of major global stocks, with the Indian stock market being most affected, is indicative of this cautious stance.

There are still worries that the growing hostilities between Iran and Israel can turn into a major regional catastrophe. According to recent reports, Israel is preparing an assault on Iran, presumably aimed at its nuclear and oil installations, in retaliation for Tehran’s missile launch last week.

Since Iran is still a major producer of oil, any Israeli attacks on its oil facilities might push up the price of crude oil, which has already risen significantly in response to the current tensions.

The production of Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), is around 3.2 million barrels per day (bpd), which accounts for 3% of the world industry. Despite US sanctions, Iranian oil shipments have increased this year to almost multi-year highs of 1.7 million barrels per day.

In India, a number of industries, including aviation, automotive, paints, tires, cement, chemicals, synthetic textiles, and flexible packaging, may be significantly impacted by rising crude oil costs.

Because rising oil prices may have a significant influence on operational expenditures, the current spike in oil prices has already had a negative effect on the stock performance of firms in these industries.

For a nation like India, which depends heavily on oil imports, the increase in crude prices would provide further difficulties. Moreover, the continuous unrest in the Middle East not only raises the possibility of rising oil costs but also puts international supply networks at risk. This is adding to the pressure on Indian equities, along with the increasing U.S. Dollar Index.

FPIs: In the manner of “buy China, exit India”

According to statistics from Trendlyne, foreign portfolio investors (FPIs) made a significant U-turn in October, withdrew ₹30,719 crore from Indian stocks in the first three days.

The biggest sell-off was on October 4, when FPIs sold off ₹15,506 crore worth of stocks, indicating a precipitous drop in investor confidence. According to experts, foreign portfolio investors (FPIs) are shifting their investments to China and Hong Kong as a result of Beijing’s announcement of significant policy changes intended to boost the country’s flagging capital markets and economy.

This trend has been spurred by increased confidence regarding a potential revival in the Chinese economy and higher profitability of Chinese corporations in response to these stimulus measures. The rising interest from FPIs has also been aided by the Chinese companies’ more alluring values as opposed to the higher valuations of Indian stocks.

As a result, during the last month, the Shanghai Composite Index has increased by 17.4%, while the Hang Seng Index has increased by more than 32%.

Is there a chance for greater correction?

The initial stock market upheaval brought on by the confrontations between Israel and Hamas and Russia and Ukraine was short-lived, since neither event has resulted in major long-term disruptions although persisting for several months. The increasing tensions between Israel, Hezbollah, and Iran are presently displaying a similar trend and are likewise expected to persist.

But until these disputes go very bad, the current fear in the market is probably only transitory.

The Indian market has historically demonstrated the ability to bounce back from geopolitical concerns, especially if they don’t lead to significant escalation. Investors frequently modify their strategy during such periods, concentrating on the underlying economic fundamentals rather than short-lived geopolitical worries.

In the meantime, domestic institutional investors (DIIs) have quickly repurchased every decline in the Indian stock market that has lately been brought about by Foreign Portfolio Investor (FPI) withdrawals, with robust backing from civilian inflows.

Every time FPI sell-offs have resulted from global uncertainty and market volatility, local investors have intervened to stabilize the markets and push them upward. Strong retail investment has reinforced this trend of regular domestic buying, ensuring that the Indian stock market is resilient even in the face of global economic uncertainty.

“FII selling is unlikely to do significant long-term harm to the market since it is expected to be offset by DII purchasing. Since banking stocks make up a sizable portion of FII holdings, this market segment may continue to see declines. Long-term investors will have opportunities to purchase frontline banking equities as a result. Chief Investment Strategist at Geojit Financial Services Dr. V K Vijayakumar stated that the industry is performing well and that this category is fairly valued.

He said, “DIIs are becoming more and more dominant players in the market, with deeper financial resources than their foreign counterparts.”

Notice: This is not an advice for buying or selling; rather, it is an educational and news item. TraderPulse advises viewer to consult with licensed professionals before to making any financial choices.