The stock market selloff continues to weigh on major indices. BSE Sensex dropped to 76,444.80, down 934.11 points or 1.21%. Nifty stood at 23,104, dropping 327.50 points or 1.4%. Other than these benchmarks, Midcap and Smallcap stocks dropped 4% each, raising further concerns about the direction of the market. Both the BSE Smallcap and Midcap indices are down 13-14% from their one-year highs, while the Sensex has fallen 11% from its 52-week peak.
The stock market selloff is largely attributed to multiple factors, including a strong U.S. dollar, foreign portfolio investment (FPI) outflows, and poor earnings projections. Concerns amongst analysts that large-cap indices such as Sensex and Nifty would remain weak in the near term as the midcap and small-cap stocks witnessed sharp fall, as the uncertainty remains with respect to the policies of the former President of the United States Donald Trump, may start a second term, and in addition, the Indian economy continues to slide downwards slowly.
Stock Market Selloff: Sensex, Nifty, and Other Stocks May Face Further Decline
“Largecaps can outperform the rest in the coming months. But midcap and smallcap stocks will face severe corrections,” said Kotak Institutional Equities. The firm also stated that FPIs were unlikely to pump in fresh investments into Indian markets anytime soon as valuations were high and redemptions were still there. Diminishing returns for retail investors will pose a problem, which will severely prevail on midcap and smallcap stocks.
Amnish Aggarwal from Prabhudas Lilladher emphasized that the market is adjusting to the economic slowdown, influenced by reduced government capex and tepid consumer demand. Rising food inflation and fiscal challenges due to potential election freebies are also creating a negative sentiment around the market. Emkay Global added that while Q1CY25 may remain weak, there’s hope for stabilization from Q2 onwards, with an improved earnings outlook and reduced selling pressure from FPIs.
For now, there is little indication that the selloff in the stock market is going to ease off soon, and investors are advised to be cautious given the dimming short-term prospects for midcap and smallcap stocks.