Where are Sensex, Nifty headed to?

Dalal Street's dream run has turned into a nightmare in just a few months. After hitting record highs, the Sensex and Nifty have been sliding for five consecutive months, marking their longest losing streak in nearly three decades. Is there any hope for relief, or will the downturn persist?

A Rough Ride for Investors

In 2022, the Nifty experienced brief declines, including a drop of 6.37% in February and 5.60% in September. But February 2025 closed with another significant decline, marking five consecutive months of losses—something not seen since 1996. The markets had their worst day in months last Friday, with the Sensex crashing over 1,400 points to settle at 73,198, and the Nifty tumbling 420 points to 22,124. In just one day, around Rs 9 lakh crore of investor wealth vanished.

From the dizzying highs of September, when the Sensex touched nearly 86,000 and the Nifty soared past 26,200, the markets have now seen a sharp correction. The Sensex has lost 15% since its peak, shedding over 12,700 points, while the Nifty has dropped nearly 16%, erasing all the gains made since last year.

What’s Behind the Bloodbath?

Analysts point to multiple factors causing the downturn. "Investor sentiment has been hit by escalating trade tariff concerns, a global economic slowdown, and disappointing earnings from companies," said Vinod Nair, Head of Research at Geojit Financial Services. The IT sector, in particular, has been hammered due to fears of a slowdown in the U.S. economy and delays in deals. Smaller and mid-cap stocks, already grappling with valuation concerns, have seen even heavier selling pressure.

Compounding the issue, foreign institutional investors (FIIs) have been pulling money out of Indian equities. On a single day last week, FIIs sold stocks worth Rs 556.56 crore, while domestic investors (DIIs) bought Rs 1,727 crore worth of shares.

What Lies Ahead?

Technical analysts are cautious about the near-term outlook. "Nifty is approaching a critical support level between 21,800 and 22,000. A move above 21,800 could signal a potential rebound, but if it fails to hold, we could see further declines," said Rupak De, Senior Technical Analyst at LKP Securities.

Ajit Mishra, SVP at Religare Broking, advised investors to be cautious, highlighting that a clear signal of a market reversal has not yet emerged. “Given the prevailing weakness, it’s best to manage leverage carefully and prioritize hedged trades,” he said.

A Historic Slump

The Nifty is on track for its longest losing streak in 29 years. The last time it faced five consecutive months of losses was in 1996, and the longest losing streak ever recorded was eight months between 1994 and 1995. Though history doesn’t guarantee future performance, it offers a glimpse into how long corrections can last.

One key driver of the current decline is the shift in global sentiment. With U.S. bond yields falling, investors are flocking to safer markets, reducing FII inflows into India. Additionally, the ongoing tariff war has created more uncertainty, further weighing on market sentiment.

Despite the bleak outlook, some experts see a glimmer of hope. "We are nearing a point of market capitulation, and oversold conditions could lead to a short-term rally next week," said Satish Chandra Aluri of Lemonn Markets Desk. However, most expect continued volatility, with a downward bias in the near future.

Is the Pain Over?

According to analysts at Kotak Institutional Equities, the markets are in a phase of “derating,” meaning stock valuations have become less attractive, making it hard to find compelling investment opportunities. "Nifty50 has broken a four-year-long trendline support, suggesting further downside. The next key support is 21,800, while any rebound may face resistance around 22,450-22,500," said Aditya Gaggar, Director at Progressive Shares.

The Bank Nifty has fared somewhat better but remains vulnerable. "If Bank Nifty drops below 47,900, it could fall further to 47,350. Immediate resistance stands at 48,900," Gaggar added.

Despite the weakness, India’s Q3 FY25 GDP data showed a 6.5% growth revision, with steady growth in agriculture. This could boost rural consumption and be a factor in market recovery.

What’s Next?

For now, investors are bracing for more volatility. With Q4 earnings and global economic developments on the horizon, the coming months could see sharp market swings. While some indicators suggest a potential rebound, a decisive turnaround remains uncertain. Until then, caution will continue to rule the markets.

Disclaimer: The views expressed in this article are those of the experts. Consult a financial advisor before making any investment decisions.