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India’s benchmark Nifty50 index is at risk of recording its fifth consecutive monthly decline, a streak last witnessed in 1996. Historically, such prolonged downturns have been rare, occurring only twice in the past 34 years.
Historical Context:
- Worst decline (1994-1995): Nifty50 plunged 31.4% over eight months
- 1996 decline: The index dropped 26% in five months
- Current decline: Down 11.7% since October 2024, with another 3% fall in February so far
What’s Driving the Downturn?
1. Technical Weakness in the Market
Analysts warn that unless Nifty reclaims 22,850, further correction towards 22,500–22,400 is likely.
"Since September 2024, Nifty has been forming a lower top–lower bottom pattern, signaling a weak market scenario where sellers dominate," said Rupak De, Senior Technical Analyst at LKP Securities.
This pattern suggests that traders are following a sell-on-rise strategy, selling stocks even at lower prices due to weak sentiment.
2. Foreign Outflows & China’s Market Resurgence
Another major factor behind Nifty’s weakness is foreign institutional investors (FIIs) shifting their focus to China.
Market Capitalization Shift Since October 2024:
- India: Shrunk by $1 trillion
- China: Gained $2 trillion
China’s Hang Seng Index has surged 18.7% in a month, while the Nifty50 has dropped 1.55%.
Why is China attracting FIIs?
- Economic stimulus measures introduced in September 2024
- Regulatory easing and policy support
- Attractive valuations after a prolonged market slump
“China’s reforms have boosted foreign investor sentiment, leading to renewed FII interest,” said Vaibhav Porwal, Co-Founder of Dezerv.
Investor Strategy: What Should You Do?
Despite the market downturn, analysts advise caution and selective stock picking rather than panic selling.
Key Investment Recommendations:
Bottom-up stock picking: Focus on quality stocks with strong fundamentals
Avoid micro-cap stocks with annual profits below ₹100 crore
Use tax harvesting strategies over the next five weeks
Be cautious of overvalued mid- and small-cap stocks
Valuation Alert:
- 40% of mid-cap stocks and 35% of small-cap stocks are trading at a P/E multiple above 50, indicating stretched valuations.
- Nifty50’s one-year forward P/E is now below its long-term average, but mid-cap and small-cap stocks remain expensive.
Will FIIs Return to India?
"FII flows into emerging markets will likely reverse soon. When that happens, India—typically receiving an 18-20% allocation—will also benefit," said a market expert.
For long-term investors, this correction could be an opportunity to accumulate high-quality stocks at attractive valuations.
A Historic Decline in the Making?
If Nifty50 continues its losing streak in February, it would mark a historic downturn not seen since 1996. With FIIs reshuffling portfolios, global market uncertainties, and stretched valuations in mid- and small-caps, investors should brace for more volatility before a potential recovery.
Bottom Line: Stay patient, focus on strong businesses, and use the downturn to build a resilient portfolio for the long term.
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