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The Indian stock market, represented by the Nifty50 and BSE Sensex indices, has experienced a significant downturn, marking its fifth consecutive week of closing in the red. This prolonged losing streak, the longest since August 2023, has raised concerns among investors and market analysts alike. The Nifty50 has dropped over 270 points this week, while the BSE Sensex has plunged over 860 points, signaling a substantial correction in the market. According to Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities, the back-to-back formation of bearish candles with long upper shadows on the weekly chart indicates a classic sign of rejection at higher levels. This pattern suggests that despite attempts to rally, the market has consistently faced selling pressure, preventing it from sustaining any significant gains. The long upper wicks on the candlestick charts tell a story of bulls attempting to push prices higher, only to be met with resistance from bears who ultimately dominated the trading sessions. This reflects a market that is struggling to build on gains, weighed down by renewed supply pressure and a cautious sentiment hovering overhead. The broader markets have also felt the impact of this bearish trend, with the Nifty Midcap and Nifty Small Cap 100 indices underperforming the frontline index for the second consecutive week. This indicates that the selling pressure is not limited to large-cap stocks but is also affecting mid- and small-cap companies, suggesting a widespread decline in market sentiment. Further exacerbating the negative sentiment, the Nifty Pharma index recorded a 3.3% decline on Friday, marking its third consecutive negative session and registering a weekly loss of 2.9%. This downturn in the pharma sector can be attributed to global pharmaceutical companies facing pressure following the White House's directive to 17 international drug manufacturers, urging them to reduce prescription drug prices in the US to align with global standards. This directive has created uncertainty in the pharmaceutical industry and has negatively impacted investor sentiment towards pharma stocks.
Several factors have contributed to this bearish sentiment, according to SBI Securities. One of the primary drivers of the market decline is the unrelenting selling pressure from Foreign Institutional Investors (FIIs). FIIs have been consistently selling Indian stocks for the past nine trading sessions, with the selloff reaching a staggering Rs 27,000 crore. This persistent outflow of foreign capital has put significant downward pressure on the market. Moreover, FIIs have established record bearish positions, with short positions in index futures reaching 90%, the highest level since March 2023. The long-to-short ratio has declined to 0.11 at the August series commencement, while the Nifty rollover rate decreased to 75.71% in July from June's 79.53%. Vinod Nair, Head of Research at Geojit Investments, noted that investor sentiment has weakened further as FIIs now hold the second-highest net short position in derivatives, reflecting elevated caution. This indicates that FIIs are not only selling stocks but are also betting against the market, further intensifying the negative sentiment. Another significant factor contributing to the market decline is the uncertainty surrounding India-US trade negotiations. The recent imposition of a higher-than-anticipated 25% tariff on India by US President Donald Trump has raised concerns about the future of trade relations between the two countries. The prospect of additional penalties for India’s purchase of Russian oil and arms has also weighed on investor sentiment. Nair of Geojit Investments stated that the Indian equity market extended its decline for a second day, pressured by renewed tariff threats and punitive duties that could undermine India's global trade competitiveness. This highlights the significant impact of geopolitical factors on the Indian stock market.
Furthermore, India Inc’s first quarter earnings have been muted and underwhelming, failing to meet market expectations. This has further dampened investor sentiment and contributed to the overall bearish tone. Over the last 30 days, the IIT index has declined by 10%, while the Nifty Bank is flat. The combined performance of India's leading nine private sector banks showed modest growth of 2.7%, indicating cautious economic expansion and subdued lending activity. This lackluster performance of key sectors has raised concerns about the overall health of the Indian economy. The strengthening US dollar has also played a role in the market decline. The US dollar index has seen a significant 2.5% increase over the week, going beyond 100 and achieving its highest level in two months. This has been the dollar's best week in approximately three years. The strengthening dollar has led to increased capital outflows from emerging economies, including India. When the dollar strengthens, it becomes more attractive for investors to hold dollar-denominated assets, leading to a shift in capital away from emerging markets. This outflow of capital puts downward pressure on emerging market currencies and stock markets. Additionally, global market conditions have also contributed to the negative sentiment. Asian markets saw big losses on Friday as traders evaluated new US tariff implications while awaiting US employment statistics. The MSCI Asia-Pacific index (excluding Japan) declined by 1.5%, seeing a weekly dip of approximately 2.7%. European shares displayed weakness, with the Stoxx 600 declining 1%, moving towards its poorest weekly performance since April. Shrikant Chouhan, Head – Equity Research, noted that global equity markets were mostly weak over the past week, as the US tariff saga continued. He added that the Indian equity market continued to underperform global equity markets in the past week. Market expert Sunil Subramaniam was quoted as saying in an ET report that FIIs had been selling right through the month, possibly anticipating that the India-US trade deal was not going India's way. He also suggested that China's improved valuation and growth prospects, with growth projected to shoot up to 4.8%, might be attracting FIIs to shift their investments from India to China.
In conclusion, the Indian stock market's recent downturn can be attributed to a confluence of factors, including persistent FII selling, uncertainty surrounding India-US trade relations, underwhelming corporate earnings, a strengthening US dollar, and negative global market conditions. The relentless selling pressure from FIIs, coupled with their bearish positions in index futures, has significantly weighed on the market. The imposition of tariffs by the US and the prospect of further penalties have raised concerns about India's trade competitiveness. The disappointing first quarter earnings of Indian companies have further dampened investor sentiment. The strengthening US dollar has led to capital outflows from emerging markets, including India, putting downward pressure on the stock market. Finally, negative global market conditions have added to the overall bearish tone. The prolonged losing streak has raised concerns among investors, and it remains to be seen whether the market can rebound in the coming weeks. The factors contributing to the decline are complex and interconnected, making it difficult to predict the future direction of the market. Investors should exercise caution and carefully consider their investment strategies in light of the current market conditions. It is also important to monitor the developments in India-US trade relations, the performance of Indian companies, and the movements of the US dollar. By staying informed and making prudent investment decisions, investors can navigate the current market volatility and protect their portfolios from further losses. Furthermore, a diversified portfolio can help mitigate the risks associated with investing in a single market or sector. Diversifying across different asset classes, such as stocks, bonds, and real estate, can help reduce the overall volatility of the portfolio and improve long-term returns. In addition, investors should consider consulting with a financial advisor to get personalized advice based on their individual circumstances and risk tolerance. A financial advisor can help investors develop a financial plan, choose appropriate investments, and manage their portfolios in a way that aligns with their goals and objectives.
Overall, the confluence of these elements has fostered a climate of caution and uncertainty, leading to the extended period of losses in the Indian stock market. Monitoring these factors will be critical for investors seeking to navigate the volatility and identify potential opportunities for recovery. The complexities of global trade, domestic economic performance, and international capital flows underscore the interconnectedness of financial markets and the challenges in predicting short-term market movements. Prudent investment strategies, diversification, and informed decision-making remain the cornerstones of successful investing in such an environment. The analysis of market sentiment, technical indicators, and fundamental data is essential for assessing the potential for future growth or continued decline. The impact of government policies, central bank actions, and geopolitical events should also be closely monitored to anticipate their effects on the Indian stock market. The resilience of the Indian economy, the competitiveness of Indian companies, and the attractiveness of India as an investment destination will ultimately determine the long-term performance of the stock market. Therefore, a holistic approach that considers both domestic and global factors is necessary for understanding the dynamics of the Indian stock market and making informed investment decisions. The market's reaction to upcoming economic data releases, corporate earnings reports, and policy announcements will provide valuable insights into its future trajectory. The level of investor confidence, the flow of foreign capital, and the stability of the Indian rupee will also play crucial roles in shaping the market's performance. In conclusion, the Indian stock market's recent struggles highlight the challenges of navigating a complex and dynamic global environment. By staying informed, diversifying their portfolios, and seeking professional advice, investors can increase their chances of achieving their financial goals and weathering the storms of market volatility. The ability to adapt to changing conditions, learn from past mistakes, and maintain a long-term perspective is essential for successful investing in the Indian stock market.
Source: Explained: Why Nifty50, BSE Sensex have closed in red for 5th week in row; top 5 reasons