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October has brought Indian markets their most significant monthly decline since the COVID-19 crisis, with the Sensex falling by approximately 5%. This decline is due to several key factors: major foreign institutional investor (FII) outflows, a rush of IPOs, qualified institutional placements (QIPs), and lacklustre Q2 earnings across sectors. Analysts sign that while the correction may continue, a significant market crash remains unlikely due to robust domestic liquidity.
FIIs Pull Out Record Funds Amid Global Uncertainty
Foreign institutional investors withdrew nearly ₹82,000 crore from Indian equities in October, marking the highest monthly outflow by FIIs in recent history. While some attribute this shift to a “Sell India, Buy China” strategy, the magnitude of these outflows underscores a cautious investor sentiment influenced by India’s elevated market valuations. This FII retreat has been a major contributor to the market dip, compounded by investors shifting their focus due to hopes of a rebound in the Chinese market.
IPOs, QIPs, and Earnings Season Intensify Sell-Off
An influx of major IPOs, including Hyundai India, and substantial QIPs have drawn liquidity from the market, pressuring investor pockets. Additionally, a muted Q2 earnings season has provided little positive momentum. Many Nifty-50 companies reported only a modest 2% year-over-year EPS growth, signalling an earnings slowdown from last fiscal year’s 26% growth to a projected 10% in FY25. Several prominent firms also missed their earnings targets, prompting analysts to revise target prices and reflect caution regarding the market’s near-term performance.
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Analysts Lower Nifty Targets but See Limited Downside
Analysts at InCred Equities have reduced their Nifty target by 3% to 25,978, anticipating prolonged correction through Q4 2024 as current valuations remain high. Goldman Sachs has also downgraded its outlook on Indian equities, moving from an overweight to a neutral stance, citing a challenging backdrop and high valuations. Despite the short-term caution, experts believe any further downside will likely be limited to 2-4%, offering a favourable entry point for long-term investors.
Market Bounce Back Expected as Corporate Health Remains Strong
Despite the current correction, experts emphasise that Indian corporate balance sheets remain deleveraged, and macroeconomic fundamentals are sound. Market analysts like Gautam Shah from Goldilocks Premium Research advise against overly short-term perspectives. Shah suggests the correction offers buying opportunities, as downside risk remains limited with significant upside potential once clarity emerges on FY26 earnings growth.
Investor Sentiment Steadies with Optimism for Quick Recovery
Gurmeet Chadha, a fund manager, notes that much of the recent correction is due to global factors rather than weaknesses in the Indian economy. Consequently, he expects a quick market rebound once conditions stabilise. As the festive season continues and geopolitical concerns ease, investors are encouraged to capitalise on near-term opportunities in sectors demonstrating earnings visibility.
What’s in for Investors?
While the October correction has been unnerving, this period may present strategic buying opportunities for investors focused on long-term growth. With Indian equities supported by strong domestic liquidity and favourable corporate health, the market is positioned for a resilient recovery once current headwinds subside.
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