Sensex falls 800 points: Should investors buy the dip or hold back?

Stock market bloodbath: This year's pre-Diwali period has been especially challenging for benchmark indices, with the Sensex and Nifty heading toward their steepest October decline since the Covid-driven crash in 2020.

In Short

• Sensex, Nifty set for steepest October decline since 2020 crash
• FIIs drive Rs 1 lakh crore outflow, unsettling markets.
• Rising inflation, Q2 earnings impact add to market volatility

Investors faced a challenging week on Dalal Street as both the Sensex and Nifty edged toward a weekly decline of nearly 7% each.

On Friday, the S&P BSE Sensex dropped 800 points during intraday trading, falling below the 80,000 mark for the first time in two months. Around 1:40 pm, it was down 821.20 points at 79,243.96, while the NSE Nifty50 tumbled 299.40 points to trade at 24,100.

Broader market indices, including midcap and smallcap stocks, also bore the brunt of the market downturn. Most of the smallcap indices fell over 2% during intraday trading, fully reflecting the nervousness on Dalal Street.

This year’s pre-Diwali period has been especially challenging for benchmark indices, with the Sensex and Nifty heading toward their steepest October decline since the Covid-driven crash in 2020.

DECODING THE STOCK MARKET BLOODBATH

According to experts, multiple factors have contributed to the market turbulence, with intense selling by Foreign Institutional Investors (FIIs) being one of the most pressing concerns.

“There has been no respite from FIIs selling in local equities this month, which has been creating uncertainty among domestic investors,” shared Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd.

So far in October, FII outflows have reached nearly Rs 1 lakh crore, with many investors shifting focus to the Chinese market following a stimulus announcement.

Other contributing factors include rising inflation, weaker Q2 earnings, the upcoming US presidential election, and heightened tensions in the Middle East. “Market sentiment remains tense ahead of the US presidential election on November 5,” Tapse explained, noting the potential impacts on key Indian sectors such as IT, pharmaceuticals, and textiles. “A cautious outlook prevails, especially as corporate earnings for Q2 have disappointed.”

WHAT SHOULD INVESTORS DO?

The recent downturn suggests a shift in the long-standing market trend, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“A distinct change in the long-term market trend is discernible from the recent market movements,” he observed. Vijayakumar pointed out that the “buy on dips” strategy, effective since the Covid low of 7,511 in March 2020, appears less effective amid current FII outflows, which reached Rs 98,085 crore this month.

Gaurav Garg, Lemonn Markets Desk, said, "For Retail investors, we would advise to closely follow the earnings updates and adjust the portfolios where there is underwhelming performance or weak guidance as valuations have come into focus sharply, especially in midcap and smallcap segments. We would expect markets to remain range-bound in the near term with a negative bias as valuations still look lofty and earnings growth moves into a slow lane."

"However, for investors looking to buy shares for the long term, this pullback also offers opportunities to accumulate good quality stocks. For investors with short-term horizon, we would advise caution in initiating any fresh long positions and follow strict stop-loss criteria on existing positions," he added.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)