Indian Stock Market Slide
08-11-2024
09:12 AM
1 min read
Why in News?
The Indian stock market has seen a consistent decline over the past month, with key indices like the Sensex and Nifty falling nearly 1% on October 25, marking the fifth consecutive day of losses.
This drop represents a 7.5% decline for the Sensex in the last month - the largest among global markets during this period.
Introduction to the Indian Stock Market:
- Understanding shares:
- Shares represent a unit of ownership in a company, not a physical asset.
- Companies issue shares to raise funds for various needs.
- Buying or selling shares requires going through a broker or stock exchange, and share prices fluctuate based on demand and supply dynamics.
- Types of investments: Investors in the stock market can choose between:
- Long-term (Equity investments): Designed for extended growth, these are popular for their potential to yield high returns over time.
- Short-term (Debt investments): Typically, lower-risk, these are intended for quicker returns.
- How does the share market work in India?
- The Indian market is divided into two primary stock exchanges:
- National Stock Exchange (NSE): A leading stock exchange in India.
- Bombay Stock Exchange (BSE): One of the oldest and most established exchanges in India.
- The Securities and Exchange Board of India (SEBI) regulates these exchanges to ensure fair practices and investor protection.
- Here, securities like equities, bonds, ETFs, and derivatives trade at prices driven by demand and supply.
- The Indian market is divided into two primary stock exchanges:
- Purpose of the stock market:
- The stock market serves as a regulated, centralised platform where companies and investors meet.
- Its primary goal is to facilitate business expansion by allowing companies to raise capital through the sale of shares, providing investors opportunities for profit and growth.
Market Overview:
- Sensex performance: The BSE’s 30-share Sensex dropped by 662.87 points (0.83%) on Friday to close at 79,402.29.
- Nifty performance: The Nifty 50 declined by 218.6 points (0.9%), ending at 24,180.8.
- One-month trend: From September 26 to October 25, Sensex fell by 7.5%, while other global indices experienced smaller declines or even gains.
Reasons Behind the Decline:
- Foreign Portfolio Investors (FPIs) sell-off: FPIs have withdrawn record funds totalling Rs 85,790 crore in October.
- Geopolitical tensions in West Asia: Uncertainties due to the West Asian conflict have weakened investor sentiment.
- Corporate Q2 results: Lower-than-expected corporate earnings have impacted confidence. Net profit growth of 502 companies slowed to 4.1% in Q2.
- Shift to primary markets: Money has flowed from the secondary market to initial public offerings (IPOs), creating a liquidity shortage.
Global Comparison:
- India has been the hardest hit among major indices, experiencing a 7.5% fall.
- Meanwhile, other indices like Shanghai (9.99%) and Hang Seng (3.85%) have surged.
Sectoral Impact on Small and Mid-Cap Stocks:
- High valuations and liquidity shortage: Small- and mid-cap stocks have dropped over 8% due to high valuations and limited liquidity, as retail investors divert funds to IPOs.
- Individual stock performance: Many small-cap stocks have fallen 20-30%, primarily due to valuation concerns.
Outlook and Future Expectations:
- Market analysts are cautiously optimistic about a recovery within the next two months.
- Despite the short-term pressures, the medium to long-term growth prospects of the Indian economy remains strong.
- Valuations suggest a moderate overvaluation but not at a level that would significantly deter long-term investment.