What should be your trading strategy during this correction phase? Sensex, Nifty 10% down from peak amid FII exodus

After reaching record highs earlier this year, both the Sensex and Nifty 50 have entered a correction phase, losing 10% from their September peaks, mainly due to foreign fund outflows and domestic concerns.

Market Correction: A Closer Look

The Indian stock market has faced its sixth weekly loss in seven weeks, with worries about consumption slowdown, earnings moderation, and foreign fund exits contributing to investor caution. The Sensex, which hit a record high of 85,978.25 on September 27, is now down by 9.76%, while the Nifty has dropped 10.44% from its peak. Key sectors, especially banking, faced steep losses amid inflation concerns and expectations of delayed interest rate cuts by the Reserve Bank of India.

Foreign Outflows and Earnings Disappointment

This market slump has been largely driven by consistent foreign fund outflows, which have amounted to approximately ₹22,156 crore this month alone. Additionally, weaker-than-expected corporate earnings, combined with inflation hitting a 14-month high due to rising food prices, have kept sentiment subdued. The markets are also feeling the pressure of $15 billion in foreign fund outflows in the last 33 sessions, making this correction more pronounced.

What’s Causing the Bearish Sentiment?

The market’s fall from its all-time highs is a result of disappointing earnings and massive foreign outflows, particularly in October, when the BSE benchmark saw a slump of 5.82%. Along with foreign investors pulling out ₹94,000 crore last month, Indian equities have struggled to maintain their momentum. Meanwhile, the dollar index remains strong, further pressuring emerging markets like India.

Experts Weigh In

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that while market corrections are a natural part of the cycle, investors should be cautious. Although domestic liquidity could trigger a bounce back, the fundamental factors, such as inflation concerns and weaker earnings growth, make any recovery short-lived.

What Should Investors Do?

During volatile times, experts recommend using algorithmic trading and hedging strategies. These tools can help investors navigate market corrections by optimizing trade timings and protecting against downside risks with options and futures contracts.

For Mutual Fund Investors: A Strategic Opportunity Despite the correction, many experts believe the 10% drop offers an ideal entry point for mutual fund investors. With equity mutual fund inflows surging by 22% in October, this correction could be an opportunity to strengthen portfolios. Analysts suggest a long-term approach, as markets typically recover over time, offering long-term growth potential, particularly in mid-cap, large-cap, and consumption-driven funds.

Although the current market correction may seem alarming, it presents strategic opportunities for investors willing to take a long-term view. While volatility is expected in the short term, historical trends suggest that markets will eventually bounce back, reflecting economic resilience. Investors should focus on solid strategies, such as mutual fund investments and hedging, to minimize risks during this correction phase.

Disclaimer: The views shared here are based on the analysis of individual experts and companies. It is advisable for investors to consult certified financial advisors before making investment decisions.