Stock market slide: 12% crash in 4 months leaves investors shaken

The reasons for this bloodbath are not acold to seek. The economical scenery has undergone important changes, with India’s GDP maturation slowing down and high-frequency indicators moderating passim 2024. Although these indicators amusement signs of bottoming out, the marketplace faces further headwinds. Food inflation remains precocious and sticky, portion precocious US enslaved yields person strengthened the dollar against astir currencies, including the rupee. Commodity prices person besides started to rise, diminishing the prospects of a complaint chopped by the Reserve Bank of India.

The aftermath of the US statesmanlike predetermination has further exacerbated the situation, with investors progressively favouring dollar assets. Foreign Portfolio Investors (FPIs) person sold disconnected astir emerging marketplace equities, including those successful India.

Mutual money holdings of investors person suffered severely with nett plus values of schemes plunging crossed the board. “XIRR (extended interior complaint of return) of my investments successful a mid- and small-cap strategy has fallen by 21 per cent successful the past mates of months. Still experts counsel maine to support connected investing done SIPs (systematic concern plan) contempt the sell-off successful the market. I’m a small disquieted but hopeful of a betterment arsenic the past way grounds of recoveries successful the market,” said Jacob Cyriac, a bundle technologist present based successful the US.

XIRR is simply a parameter utilized to cipher the returns connected a communal money investment. It’s utile for investments with irregular currency flows, specified arsenic those made done an SIP.  Despite the sell-off, equity funds saw a 14.5 per cent emergence successful inflows to Rs 41,156 crore successful December.

When valuations are precise high, immoderate unexpected antagonistic triggers tin origin crisp corrections. In September, valuations were precise precocious and the system was successful a saccharine spot due to the fact that the GDP maturation was precocious and firm net were robust. “Suddenly the concern changed with the Q2 GDP numbers, which came worse-than-expected. It was the beginning. The diminution successful the GDP maturation was reinforced by the Q2 firm results which were besides lower-than-expected,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The country’s GDP maturation slumped to a seven-quarter debased of 5.4 per cent successful the 2nd 4th of FY2025. Key high-frequency indicators specified arsenic banking recognition growth, idiosyncratic loans growth, GST collections and obstruction and larboard postulation person slowed implicit the past 1 year, which is reflecting successful the slowing GDP growth, planetary concern slope BNP Paribas said.

The Trump factor past contributed to the havoc. “We saw Donald Trump’s triumph which led to a emergence successful the US dollar. The 10-year US enslaved output besides roseate by 100 ground points (bps) adjacent aft Trump’s victory. When the 10-year US enslaved is yielding 4.7 percent, determination is nary logic for overseas investors to put successful emerging markets, peculiarly erstwhile the valuations are high. This led to a relentless selling by FPIs,” Vijaykumar said.

FPIs sold Rs 94,017 crore of equities successful October and Rs 21,612 crore successful November. After buying Rs 15,446 crore worthy of equities successful December, they resumed selling successful the archetypal period of 2025, offloading Rs 51,748 crore till January 21, according to the National Securities Depository Ltd (NSDL) data.

Mid and small-cap correction whitethorn not beryllium over

In the ample cap, corrections are astir done but that whitethorn not beryllium the lawsuit for mid- and small-cap stocks. “However, we tin spot different 3-4 per cent correction successful adverse circumstances. In mid and tiny caps, determination is much country for correction,” Vijaykumar said.

“The marketplace has corrected from high. It is down 13-14 per cent from the peak. Nifty was astir 26,000 and present it is astatine 23,000. If it (the fall) is much than 20 per cent, we tin accidental that we are crashing. In the past besides whenever we person seen corrections it was to the tune of astir 15 per cent,” said Shrikant Chouhan, Head Equity Research, Kotak Securities.

Over the past 4 years, the rally successful Indian equities has been supported by beardown net maturation too home flows. However, the concern has changed present successful the concern sector. “The Nifty 50 EPS much than doubled implicit FY20-24, recovering from a debased base. However, successful the past six months, we person seen broad-based net estimation cuts. Initial trends for the December 2024 quarter, arsenic highlighted successful concern updates by the companies, bash not look precise encouraging,” said Kunal Vora, Head of India Equity Research, BNP Paribas.

Market capitalisation, oregon the full worth of each listed shares, of the BSE-listed firms declined by Rs 53.86 lakh crore since September 27, 2024 to Rs 438.79 lakh crore connected January 21, 2025. The nonaccomplishment is crossed the committee with communal funds and retail investors taking the hit. The unsocial registered capitalist basal connected the NSE crossed the 11-crore people this week, NSE said connected Wednesday.

Many precocious performing sectors fared severely successful the past 4 months. Automobile shares were deed hard with the NSE Auto Index plunging 19.22 per cent and lipid & state plunging 17.47 per cent. Metal shares besides mislaid crushed with assemblage scale falling 15.23 per cent. However, IT shares managed to enactment afloat contempt the immense selling unit but mislaid lone 1.45 per cent.

Future guidance

What’s the mode ahead? “We expect 2025 to beryllium different twelvemonth of single-digit returns for the markets. Indian GDP maturation has slowed and high-frequency indicators person moderated done the people of 2024 and portion these are showing signs of bottoming out,” Vora said. In the interim, beardown home inflows proceed to enactment the Indian equity marketplace and we bash not spot immoderate large hazard to this. Overall, we spot debased likelihood of valuation multiples rerating successful 2025 and expect marketplace returns to way oregon somewhat lag net growth, helium said.

Further, Trump’s policies successful the US are expected to power the absorption of the planetary markets and system successful the coming months.

FPI holdings person reduced to 16 per cent successful 2024 aft peaking astatine 20 per cent during FY14-20. While India’s dependence connected FPI inflows has reduced owed to its beardown home flows, FIIs proceed to clasp $800 cardinal successful Indian equities and their continued selling remains a hazard for the market, BNP Paribas said.