Highlights
- Nifty 50 and Sensex decline 4% in February so far, extending total losses to 13.8% and 12.98% since their peaks on September 27, 2024.
- Nifty 50 set for a five-month losing streak, the longest since 1996.
- Weak corporate earnings, sustained foreign outflows, and global economic slowdown weigh on investor sentiment.
- Kotak Institutional Equities remains cautious, citing high valuations and risk of earnings downgrades.
- Citigroup upgrades Indian equities to Overweight, citing less demanding valuations and long-term upside potential.
Nifty 50 Faces Historic Decline Amid Market Weakness
Indian equity markets are experiencing their worst downturn in nearly three decades, with Nifty 50 poised for its longest monthly losing streak since 1996. The index has already fallen 4% in February, bringing total losses to 13.8%, while the Sensex has dropped 12.98% from its all-time high recorded on September 27, 2024.
The last time Nifty 50 experienced five consecutive months of decline was between July and November 1996. Historically, the index has recorded such prolonged downturns only twice before, with the longest losing streak lasting eight months between September 1994 and April 1995.
With market sentiment remaining weak, analysts warn that the current downturn could extend further, making it one of the worst-performing periods in India’s stock market history.
Factors Contributing to Market Weakness
1. Weak Corporate Earnings Weigh on Market Sentiment
Disappointing Q3 corporate earnings across multiple sectors have significantly impacted investor confidence. Several companies have missed revenue and profit expectations, leading to a sell-off in large- and mid-cap stocks.
2. Sustained Foreign Outflows and High Valuations
Foreign Institutional Investors (FIIs) have continued to offload Indian equities, further exacerbating the downward pressure. High global interest rates and a shift in investor focus to developed markets have resulted in reduced foreign capital inflows into Indian markets.
3. Economic Slowdown and Global Risks
- Sluggish GDP growth projections and inflationary pressures have raised concerns about India’s economic outlook.
- The risk of earnings downgrades in the coming quarters remains high.
- Analysts predict continued pressure on small- and mid-cap stocks, which are particularly vulnerable to market volatility.
4. Expensive Valuations Limiting Buying Opportunities
According to Kotak Institutional Equities, most sectors and stocks continue to trade at rich valuations, limiting value-buying opportunities. Despite the correction, market returns over the past 12 months remain flat, suggesting a lack of attractive entry points for new investors.
Kotak remains cautious and expects stocks to remain range-bound in the coming months as they adjust to strong returns recorded in recent years.
Citigroup Upgrades Indian Equities to Overweight
Amid the bearish sentiment, Citigroup has upgraded Indian equities to Overweight from Neutral, citing:
- Less demanding valuations after the recent correction.
- Upside potential compared to other emerging markets.
- Stronger resilience versus ASEAN markets, which Citi downgraded to Underweight due to weak earnings growth and subdued economic forecasts.
With global tariff risks resurfacing, India is expected to be a relative outperformer among emerging markets, according to Citi.
US Market Volatility Adds to Global Uncertainty
The global stock market downturn intensified on Friday, as US markets recorded their worst session of the year following:
- Weaker-than-expected economic data, raising concerns about slowing growth.
- A sharp rise in long-term inflation expectations, the highest since 1995.
- Expiration of $2.7 trillion in options contracts, leading to increased market volatility.
- Renewed discussions about potential pandemic-related risks, following reports of a new COVID-19 study in China that sent vaccine-maker stocks surging.
Outlook for Nifty 50 and Indian Stock Market
While market volatility remains high, some analysts believe that a breakout above key resistance levels could trigger a trend reversal:
- Nifty 50 is hovering around a crucial support zone, with investors awaiting positive triggers for recovery.
- Upcoming corporate earnings, economic data, and global monetary policy decisions will be critical in shaping market direction.
- Fund managers and institutional investors remain watchful, balancing short-term risks with long-term growth opportunities.
Markets Brace for Continued Uncertainty
With Nifty 50 set to record its worst losing streak since 1996, investors are navigating one of the most challenging periods in recent history. While Kotak Institutional Equities maintains a cautious outlook, Citigroup’s upgrade signals optimism for long-term growth.
As foreign investor sentiment remains weak and global economic headwinds persist, all eyes are on corporate earnings, foreign fund flows, and macroeconomic indicators to determine the next phase of market movement.
