The market collapse is deepening! Nifty50 Down 6.5% in October: What Should Investors Do Now?

The Indian stock exchange on Friday, October 25, there was a significant sell-off as both the benchmark indices, Sensex and Nifty, fell by almost 1%. The market deterioration was driven by a significant outflow of foreign investors, tight valuations, disappointing September quarter results and global uncertainty, including the upcoming US elections and escalating tensions in the Middle East.

The Sensex ended with a score of 663 points, or 0.83%. lower, at 79,402, falling below 80,000 for the first time since mid-August. The Nice fell 218.60 points, or 0.9 percent, to 24,180.80. Meanwhile, mid-cap and small-cap indexes underperformed, each falling about 2 percent, highlighting the vulnerability of the broader market.

The market decline has been almost completely eliminated ₹9 lakh crore market capitalization in one day, at total market value BSE-listed companies decline to approx ₹435 lakh crore from ₹444 lakh crore in the previous session.

This marks the fifth consecutive session of losses for the Nifty, which has lost over 2.5 per cent this week alone and is currently 8 per cent below its September 27 high of 26,277.35. While the October decline touched 6.5 percent, the Nifty price remains at 11 percent year-to-date and 26.5 percent year-on-year.

Key market insights and expert recommendations

As Nifty approaches the 200-DMA support level and volatility persists, market experts are advising strategic moves to get through this challenging phase. From selective purchases of large-cap financial stocks to cautious accumulation of high-conviction stocks, here’s what analysts recommend for investors in today’s volatile market.

Santosh Meena, Research Director at Swastika Investmart

Santosh Meena noted that the sharp correction in the Indian market is due to heavy overseas institutional selling due to valuation concerns and increased attractiveness of the Chinese market. Weak profits reports, especially from the consumption sector, indicated a slowdown in demand in cities, which also began to affect financial exchanges. Meena also highlighted selling by high net worth individuals (HNI) and retail investors who have not seen this depth correction in recent times.

Meena suggested that Nifty may test its 200-day moving average (DMA) near the 23,400 level before rebounding after the October expiry. He predicted continued pressure on mid- and small-cap stocks, but recommended using the decline to invest in high-quality large-cap stocks in the financial sector, where valuations are becoming attractive.

Krishna Appala, Senior Research Analyst at Capitalmind Research

Krishna Appala termed the correction continuing, with the Nifty index down 7.8% from its recent peak and volatility increasing as the India VIX index rose to 14.7. He attributed the broader slowdown to weak demand and high production costs in consumer sectors such as cars AND FMCGthat affected margins. While demand in rural areas could potentially increase due to the strong monsoon, urban markets continue to struggle, putting pressure on sales and profits.

Despite the challenges, private banks remained stable, showing stable net interest margins. Appala cautioned investors to be cautious of high P/E stocks due to earnings reduction, noting that expensive valuations could lead to further corrections. With the outflow of foreign institutional investors (FIIs). ₹For October alone, Appala sees this valuation slowdown as an opportunity to gradually accumulate high-conviction stocks as the market stabilizes.

Diwakar Rana, fund manager at Prudent Equity

Diwakar Rana emphasized that the recent enthusiasm in the market has waned and intensified FII sales and disappointing quarterly results. Weak earnings in the consumer sector, impacted by slowdowns in urban and rural areas, resulted in a significant sell-off. The banking sector also faced an increase in non-performing assets (NPAs), increased price variances and lower profits as companies recorded higher provisions.

But for Rana, this difficult period presents an opportunity for grassroots value-oriented investors. He noted that several growth-oriented companies are currently trading at attractive valuations, making it an opportune time for investors to selectively buy stocks with long-term potential.

Technical analysis

Aditya Agarwal, Director of Derivatives and Technical Analysis at Sanctum Wealth

Aditya Agarwal noted that the market continues to be under selling pressure, breaking key support levels. In intra-day trade, Nifty moved below 24,100 to touch a low of 24,073 before covering the short position in the last hour, pushing it to close at 24,180. Agarwal noted that Nifty level of 24,000 will be a strong support due to significant number of offer subscriptions. On the other hand, resistance at 24,400 and 24,500 could prevent a near-term upside. He suggested that with most technical indicators in oversold territory, a pullback could be on the horizon, potentially pushing the index to levels of 24,350 or 24,440.

Vishnu Kant Upadhyay, AVP – Research and Consulting at Master Capital Services

Upadhyay observed that Indian benchmark indices saw a sharp decline on Friday, with the Nifty50 falling over 300 points and the Sensex falling around 900 points. The deterioration of the economic situation was largely due to weaker-than-expected quarterly results, the continuing outflow of foreign investors and a significant exceedance of the 100-day EMA in the case of both indices. This technical break, which occurred a few days earlier, added to the sell-off as short-term traders exited their positions. Key oscillators also pointed to a bearish divergence, pointing to increasing technical challenges and the potential for further price corrections in the near future.

In summary, while the current situation suggests caution, analysts view the economic downturn as an opportunity for selective investment. With benchmarks like Nifty testing critical support levels, the potential for a bounce remains. The prevailing view among experts is that while volatility may persist in the short term, long-term investors can take advantage of this correction to build positions in high-conviction stocks.

Disclaimer: The views and recommendations presented above are those of individual analysts or brokerage firms, not of Mint. We advise investors to seek the opinion of certified experts before making any investment decisions.