Investors lose Rs 5.76 lakh cr: FII sell-offs, global jitters dunk Sensex under 67,000

Indian stock markets experienced a sharp downturn on Tuesday, 12 November, wiping out Rs 5.76 lakh crore in market capitalisation as investors pulled back after a promising start to the day.

By the closing bell, Sensex had dropped over 800 points and Nifty slipped below the 23,900 mark, bringing the total BSE market capitalisation to just Rs 439.27 lakh crore.

Heavyweights such as HDFC Bank, SBI, NTPC, Tata Motors, Asian Paints and Bajaj Finance contributed to the decline, with HDFC Bank alone responsible for a 324-point drop in the Sensex. Analysts note that this broad-based selling reflects not only domestic challenges but also global market jitters.

Asian markets, particularly Chinese stocks and semiconductor sectors, saw similar declines as investors reacted to policy uncertainties under US president-elect Donald Trump’s administration. However, Bitcoin defied the downward trend, reaching an all-time high of $89,637 amid optimism that potential US tax cuts and deregulation could support select asset classes.

Foreign institutional investors (FIIs) continued their selling spree, unloading Rs 2,306 crore worth of equities. FII net sales in Indian stocks have been significant this month, totalling Rs 23,547 crore in November after offloading Rs 94,017 crore in October, indicating continued caution around emerging markets.

October 2024 marked a record month for the Indian equity market, albeit negatively, as FIIs withdrew a net Rs 114,445.89 crore, the highest monthly outflow recorded to date. This surpasses previous highs, including Rs 42,214 crore in May 2024 and Rs 65,816.70 crore during the March 2020 Covid-19 crash.

Unlike 2020, however, when Nifty fell over 20 per cent, recent losses have been limited due to robust support from domestic institutional investors (DIIs), who purchased a net Rs 107,254.68 crore in October. Early November shows a continuation of the trend, with FIIs selling Rs 7,111.13 crore and DIIs buying Rs 5,589.71 crore when we examine last week.

A key factor driving this shift is China’s series of stimulus measures, which have bolstered the appeal of its markets.

Additionally, valuations in India remain high. With a Nifty50 PE ratio over 24 before October, the Indian market appears slightly overvalued compared to global peers, as the historical median PE stands at 21.9. Recent domestic challenges, including a September inflation rate of 5.49 per cent — the year’s peak until October's drastic retail inflation all the way to 6.2 — have also weighed on the figures.

High inflation erodes purchasing power and reduces consumer spending, which can squeeze corporate profit margins and depress earnings, leading to lower stock prices. Further exacerbating concerns is a weaker-than-expected Q2 FY25 earnings season, where net profit growth of Indian companies hit a 17-quarter low at 3.6 per cent, pressured by sluggish revenue growth, rising costs and slight increases in total expenses.

Oil prices remained largely steady, with Brent crude trading at USD 71.87 per barrel and US West Texas Intermediate at USD 68.03 per barrel.

Concerns around China's economic stimulus measures and global oil supply limited any significant gains, though, with investors awaiting OPEC's report on production trends.

The Indian rupee also came under pressure, hitting a record low of Rs 84.40 per dollar due to a strong US dollar and a weaker Chinese yuan. Intervention from the Reserve Bank of India (RBI) helped stabilise the rupee at around 84.3950, but the currency remains vulnerable to global forces.

All eyes have been on India’s October inflation data, which was released after market closing, though analysts had already forecast a 14-month high of 5.8 per cent. Rising inflation may weigh on the Reserve Bank of India’s (RBI) monetary policy decisions, possibly influencing its next interest rate review in December.

Arvind Sanger, founder and managing Partner at Geosphere Capital Management, highlighted signs of a “mid-cycle slowdown” in the Indian economy. “The economy is slowing, affecting sectors from FMCG to auto and commercial vehicles,” he noted.

Sanger believes the downturn is cyclical rather than structural, but remarked that foreign investors may remain cautious until signs of economic recovery become clearer. “Without economic re-acceleration, FIIs may hesitate to return,” he added.

With multiple economic indicators pointing to a slowdown, observers feel that the Indian markets may face further challenges in maintaining investor confidence, underscoring the importance of a robust policy response to stabilise growth in the months ahead.