Sensex, Nifty continue losing streak amid ongoing FII exodus, dull Q2 earnings

At the closing bell, the Sensex was down 662.87 points at 79,402.29, while the NSE Nifty50 settled 189.55 points lower at 24,209.85. 

In Short

• Sensex, Nifty experience longest weekly losses since August 2023
• Nifty, Sensex nearing worst monthly drop since Covid-19 crash
• Small, mid-cap stocks endure steep 6.5% and 5.8% weekly losses

Benchmark stock market indices extended their longest weekly losing streak since August 2023, with both the Sensex and Nifty facing sharp declines as foreign investors continued to pull back amidst a wave of lacklustre Q2 earnings. By the week’s close, the NSE Nifty 50 was down 2.7%, while the BSE Sensex fell 2.2%, marking the fourth straight week of losses for both indices.

Friday's trading session amplified these losses, with the Nifty50 dropping over 300 points and the Sensex plunging nearly 900 points as the indices dipped below the 100-day EMA. At the closing bell, the Sensex was down 662.87 points at 79,402.29, while the NSE Nifty50 settled 189.55 points lower at 24,209.85.

The decline spurred selling activity among short-term traders and reinforced the bearish sentiment gripping Dalal Street.

Santosh Meena, Head of Research at Swastika Investmart, attributes the slide primarily to aggressive selling by foreign institutional investors (FIIs), who have redirected capital to China, where stimulus efforts and attractive valuations have created a compelling alternative.

"The primary driver is foreign institutional selling, driven by valuation concerns and the increased attractiveness of the Chinese market. Another major factor is disappointing earnings reports from Indian companies, especially in the consumption sector, which signal an economic slowdown, particularly in urban consumption," Meena said, adding that this slowdown is also impacting financial stocks.

"Additionally, we are now seeing selling pressure from many HNIs and retail investors, who haven’t experienced a correction of this depth for some time," he added.

Vinod Nair, Head of Research, Geojit Financial Services agreed. "The domestic market faced a continuous fall due to persistent FII selling. All sectors, except FMCG, were impacted, with small and midcap stocks suffering the most. However, DII have been a strong buyer absorbing the selling and mitigated the fall," Nair said.
"Due to the regressive selling, the domestic market is expected to reach the oversold territory. We can expect a tactical bounce in the near-term. The resilience of recent manufacturing data suggests the plausibility of an economic recovery in H2FY25, which should encourage investors to accumulate quality stocks," he added.

Meanwhile, Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services, warned of further price corrections, citing mounting technical challenges. "A breach of the 100-day EMA has heightened the selloff, with several key indicators showing bearish divergence,” he said. He advised investors to remain cautious, particularly in the midcap and small-cap sectors.

As broader market indices, including small and mid-cap stocks, suffered weekly losses of 6.5% and 5.8%, respectively, Meena suggested that investors use this dip to accumulate high-quality large-cap stocks, particularly in the financial sector, where valuations appear more attractive.

Both the Nifty and Sensex are heading towards their worst monthly performances since the Covid-19 crash in March 2020, reflecting deepening investor concerns over valuation, economic outlook, and the potential ripple effects of the upcoming October expiry.