Markets nosedives four-month low amid ongoing October decline

As the US presidential election approaches on November 5 and the US Federal Reserve's policy announcement looms on November 7, the benchmark indices experienced a significant drop, reaching their lowest levels in over four months during intra-day trading on Monday. Concerns about these major global events, along with fresh stimulus measures from China, contributed to the heightened investor anxiety.

The Sensex and Nifty both saw a 2% fall during the day, dipping to 78,232.60 points and 23,816.15 points, respectively. Despite this, the indices managed to recover some ground by the end of the session. The Sensex closed 1.2% lower at 78,782.24 points, and the Nifty ended 1.3% lower at 23,995.35 points.

Broader Market Impact

The broader market witnessed even more aggressive selling, with the BSE Smallcap index dropping 1.7% and the BSE Midcap index falling 1.3%. Overall, 2,717 stocks declined on the BSE, compared to 1,351 gainers.

Investor Activity

Foreign portfolio investors (FPIs) net sold shares worth Rs 4,329.79 crore, while domestic institutional investors (DIIs) purchased shares worth Rs 2,936.08 crore. According to UR Bhat, co-founder of Alphaniti Fintech, there is speculation that China may announce another round of stimulus post-US election, which could lead to a shift in FPI investments from India to China, as seen previously.

Market Volatility

India VIX, a measure of market volatility, jumped 5% as investor wealth worth Rs 5.8 lakh crore was wiped out on Monday. All sectoral indices closed in the red, with real estate, energy, metal, and financial services being the hardest hit.

Expert Insights

Vinit Bolinjkar, head of research at Ventura Securities, noted that the headwinds from the US elections and the upcoming Federal Reserve policy meeting have intensified the ongoing market correction, particularly when Indian markets are trading at high valuations.

Despite record buying from DIIs providing some support to domestic equities, market participants caution that continued aggressive FPI selling could further dampen market sentiment. Bhat pointed out that there is a limit to how much domestic investors and institutions can invest, and sustained FPI sales might make it difficult for domestic entities to uphold current market levels.