The Indian stock market continued to reel under pressure for the second consecutive session on Friday, July 25. Benchmark indices—the Sensex and the Nifty 50—suffered significant losses, while mid- and small-cap segments declined even further.
The Sensex fell over 600 points, or almost 1 per cent, to an intraday low of 81,540, while the Nifty 50, too, dropped nearly 1 per cent to the day’s low of 24,844.
Around 11:35 AM, the Sensex was 421 points, or 0.51 per cent, down at 81,763, while the Nifty 50 traded at 24,872, down 190 points, or 0.76 per cent.
In just two sessions, the Sensex has crashed almost 1,200 points, or 1.4 per cent, while the Nifty 50 has also retreated 1.5 per cent.
Investors have seen their wealth erode by over ₹7 lakh crore in just two days, as the market capitalisation of BSE-listed companies fell from ₹460.35 lakh crore on July 23 to nearly ₹453 lakh crore. On Friday alone, the market wiped out ₹5 lakh crore, with the total m-cap dropping from ₹458.11 lakh crore in the previous session.
Why is the Indian stock market falling?
Experts highlight the following five factors that are keeping the market down:
1. Delayed India-US trade deal
There are no clear signs about an India-US trade deal even as negotiations are on, but reports suggest both countries are making significant progress in this direction.
The US has signed trade deals with several Asian countries, including Japan, the Philippines, Indonesia, and Vietnam. However, uncertainty still persists about a potential deal with India.
The key hurdle in the way is the US’ demand for greater access for agriculture, dairy, and genetically modified (GM) products in India, while New Delhi remains resolved to protect the country’s farmers.
Meanwhile, as per reports, Commerce Minister Piyush Goyal has expressed optimism that trade talks with the US are making “fantastic” progress and that India may receive preferential treatment from the US.
2. Relentless foreign capital outflow
Foreign portfolio investors (FPIs) have been on a selling spree in the Indian stock market. Data show that FPIs have sold Indian equities worth ₹28,528 crore in the cash segment in July so far. In the last four days only, FPIs have taken off ₹11,572 crore from Indian stocks in the cash segment.
“The primary reason for this decline is the continuous selling by Foreign Institutional Investors (FIIs) in both the equity and Futures & Options (F&O) markets. FIIs remain uncomfortable with the valuations of the Indian equity market, even with improving macroeconomic and microeconomic indicators,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.
3. Lacklustre Q1 results
Lacklustre Q1 results of India Inc. have failed to lift market sentiment. There have been more misses than hits in sectors like IT and financials. Even as Q1 was expected to be a modest quarter, cautious management commentaries are weighing on market sentiment.
“The current earnings season, while not entirely disappointing, has also not been particularly encouraging. Adding to the uncertainty is the stalled trade deal between the US and India,” said Meena.
4. Mounting concerns over stretched valuations
Experts point out that the domestic market’s valuation is stretched, which appears to be unsustainable given weak quarterly earnings.
While the Nifty is not at uncomfortable valuations, the broader market appears to be hot.
“The near-term market construct has turned weak. The weakness in the broader market, particularly in small-caps, might continue since valuations have turned excessive and difficult to justify,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
5. Technical factor: Nifty breaks key support at 25k
The Nifty 50 has fallen below the 25,000 mark, which indicates more weakness could be in the offing.
Akshay Chinchalkar, the head of research at Axis Securities, underscored that Thursday’s candle completed yet another bearish engulfing- two in quick succession, which is a rare event.
“The battle lines are clear: 25,000 is vital support, while 25,245 is key resistance. Bears will continue to have the upper hand until we have a daily close above 25,340,” said Chinchalkar.
According to Meena, the immediate demand zone for Nifty appears to be between 24,800and 24,735. Below this, 24,500 is a critical support level.
However, Meena added that the index could test its 200-DMA (daily moving average) around the 24,000 level, while upside movement is capped around the 20-DMA of 25,300.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
