Sensex Records Worst Fall
By Shivaji Sarkar
The economy is slowing down! Indications include creeping severe sourness at the stock market, Rs 26 lakh crore loss to investors and withdrawal of Rs 90,000 crore by foreign funds during a month leading to the worst crash on October 25. No wonder there is a tear in the Mumbai stock markets, suffering continuous losses.
In October, Sensex records its worst monthly fall since the Covid-19 crash with a 5 per cent drop, shearing Rs 7 lakh crore in a day. The Sensex tumbles over 6434 points from an all-time high of 85,85978.25 points nearly a month ago on September 24. The NSE’s Nifty came down to 24181 points. Both indices lost about 1 per cent. It is stated that if Nifty breaks below 24000 points, market outlook would worsen. The October 21-25 has been a rare weak when for all the five days the stock decline continued.
The BSE’s 30-share Sensex tumbled 662.87 points, or 0.83 per cent, to close below the 80,000 mark at 79,402.29 on October 25. The broader Nifty 50 declined 218.6 points, or 0.9 per cent, to end at 24,180.8. The fall is likely to continue both in BSE Sensex and Nifty amid dismal performance of various companies in the second quarter (Q2) worsening the mood during the peak festive season, according to stock expert firm CLSA, erstwhile Credit Lyonnais Securities Asia.
Among the major global market indices, India has emerged as the biggest loser over the last one month. Between September 26 and October 25, major global indices that witnessed a fall include Sensex (7.5 p.c.), FTSE (0.25 p.c.), Nikkei (2.41 p.c.) and Bovespa of Brazil (2.21 p.c.). On the other hand, indices that have surged in the last month are Shanghai (9.99 p.c.), Hang Seng (3.85 p.c), German DAX (1.21 per cent) and Dow Jones (0.55 per cent).
While the Sensex surged 36 per cent between 30 May 2023 and 26 September 2024, it declined by 7.5 per cent between 26 September 26 and 25 October. The largest single-day drop of this year occurred on June 4, the day the general election results were announced, with the Sensex falling by 5.74 per cent. On that day, FPIs sold shares worth Rs 12,436 crore, highlighting the significant influence they have on Indian equity markets. Domestic institutional investors (DIIs) also contributed to the sell-off, recording net sales of Rs 319 crore.
Sensex and Nifty witnessed a heavy crash earlier on January 17, with the BSE index down by over 1600 points, and Nifty down by over 400 points. Nifty took the deepest plunge of all, down by 2060 points. Since January 2024, the stocks dipped severely 10 times on January 17-2.23 p.c. and 23 – 1,47 p.c.; March 13 – 1.23 p.c.; April 15 – 1.14 p.c.; May 9 – 1.14 p.c.; June 4 – 5.74 p.c.; September 6 – 1.24 p.c. and 30 – 1.49 p.c.; and 3 – 2.10 p.c., and October 25.
After roaring growth in recent years, the economy seems to be losing momentum. According to the latest official figures, the annual GDP growth rate eased to 6.7 per cent between April and June, down from 7.8 per cent in the previous quarter. That is the slowest expansion in more than a year, says The Economist.
The recent data released suggest that the slowdown continues. An index tracking output in eight core industries, such as coal, oil and electricity, fell in August for the first time in more than three years. In September car sales, a proxy for consumption, fell by 19 per cent year on year. Growth in collections from the goods-and-services tax, another indicator of economic health, also fell to its lowest level in more than three years.
According to experts, the Indian market is falling due to five reasons — the US presidential elections, geopolitical tension, Maharashtra state elections, below-par Q2 results of 2024, and weakness in the rupee that came down below Rs 84.07 to a dollar. Additionally, the growth of companies is expected to decline to 5-7 per cent in 16 months stagnation in construction, decline in industrial commodities and sluggish investment leading to slowdown. Agricultural sector experienced 22 per cent revenue drop.
Some factors that the market participants point to for the fall are money flowing from the secondary market to the primary market and the possibility of FPI funds flowing from India to China in the wake of a significant rise in Chinese markets. The recent sharp up move in Chinese markets after a period of significant underperformance could lead to FPIs diverting flows from India in the near term. The sell-off by foreign investors is also attributed to booking profits after the Sensex and the Nifty touched all-time highs and as the rupee depreciated to an all-time low of 84.07 on October 14.
The foreign fund outflows stood at a record Rs 85,790 crore in October so far — the highest in a month in calendar year 2024. Domestic institutional investors pumped in Rs 97,090 crore, but despite such strong support, the indices plummeted in October. The small and mid-cap stocks also tanked over the last one month by over 8 per cent on concerns over higher valuation and as retail investors pulled out money from the secondary market to invest in initial public offering (IPO). Another reason is stated to be that this segment is wary of investing and expanding because of predatory attempts large conglomerates and monopolies.
The growth in factory output is declining. Manufacturing activity has slumped to its lowest in eight months. The weak private investment, stagnant manufacturing and falling real wages are the bane. The situation could get worse if the conflict in the Middle East escalates and oil prices keep rising. Estimates suggest that a $10 increase in the price of an oil barrel could shave up to 0.4 per cent off India’s GDP. The inevitable rise in fuel subsidies would also crowd out other government spending.
The Union Finance Ministry has acknowledged these developments, describing them as “incipient signs of strains”. Nevertheless, few policymakers believe that the new data is more than temporary blips in India’s trajectory. At its latest meeting on October 9th, the Reserve Bank of India retains its growth forecast of 7.2 per cent for the current fiscal year and Governor Shaktikanta Das insists that “India’s growth story remains intact.” Living in a make-believe world? — INFA